Philippine Central Bank Pledges Timely Action as CPI Surges

Updated on
  • Inflation quickened to 4% in January, exceeding all estimates
  • Central bank is forecast to maintain rate at 3% this week
Credit Suisse’s Santitarn Sathirathai weighs in on the Philippine Central Bank monetary policy.

The Philippine central bank pledged to take timely action after data showed consumer prices increased at the fastest pace in more than three years in January. Stocks and the peso fell.

Inflation rose to 4 percent, up from 3.3 percent in December, the Philippine Statistics Authority said in an emailed statement on Tuesday, as the costs of food, beverages and tobacco rose. That exceeded all forecasts in a Bloomberg survey of 14 economists, and was the quickest since Oct. 2014.

The onus is now on Bangko Sentral ng Pilipinas to start tightening monetary policy, or at least signal a more hawkish stance when it decides on interest rates on Thursday. Governor Nestor Espenilla attributed the surge in prices to the implementation last month of the tax law that raised levies on fuel, sugary drinks and cigarettes, and higher oil and food cost.

“We think these are temporary drivers of inflation and would eventually stabilize,” Espenilla said in a mobile-phone text message on Tuesday. “Nevertheless, BSP will be closely monitoring the situation and stands ready to take timely action based on our evaluation of all relevant data.”

Most economists surveyed before the inflation data predicted the rate would be held at 3 percent. The central bank’s target is to keep inflation at an average of 2 percent to 4 percent from 2018 to 2020.


“A rate hike looks imminent from the Philippines,” said Gundy Cahyadi, an economist at DBS Group Holdings Ltd. in Singapore, who is one of three analysts predicting a 25 basis-point hike on Thursday. “There’s definitely upward pressure on inflation. The revised taxes does have a minimal price effect, but what’s more important is its impact on inflation expectations.”

The peso fell 0.2 percent to 51.58 per dollar as of 11:05 a.m. in Manila. Stocks fell 2.1 percent.

“We haven’t seen inflation this high in recent years,” John Padilla, who helps manage 460 billion pesos ($8.9 billion) as head of equities at Metropolitan Bank & Trust Co. in Manila. “It will make people step back and ask if this is the start of a new cycle, so the cost of business will be higher and earnings will be crimped.”

— With assistance by Ian C Sayson

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