Espenilla faces his first big policy test as BSP chief
Bangko Sentral ng Pilipinas Governor (BSP) Nestor Espenilla Jr. faces his first major test tomorrow: Striking a balance between curbing inflation and calming financial markets.
Inflation is at the highest in more than three years in January, the currency is under pressure and investors are fleeing emerging markets. Espenilla has to decide whether now is the right time to tighten monetary policy for the first time since 2014 to prevent one of Asia’s fastest-growing economies from overheating.
“Bangko Sentral ng Pilipinas may finally deliver on rate hikes after the spike in inflation to 4 percent,” said Eugene Leow, a fixed-income strategist at DBS Group Holdings Ltd. in Singapore. “With sentiment already jittery, higher rates may actually instill confidence in peso assets.”
Thirteen of the 17 economists surveyed by Bloomberg predict the benchmark rate would be held at 3 percent, with the rest forecasting an increase to 3.25 percent. The Philippines is among the top inflation-targeting central banks in Asia and its credibility now rests on the governor, who took office in July.
Policy makers in Asia face pressure to follow the US in tightening monetary policy with Malaysia raising rates in January. The sell-off in global stocks and emerging-market currencies are complicating the job of central bankers who seek to preserve stability while anchoring inflation and growth expectations.
The peso has lost 3 percent this year, among the worst-performing currencies in emerging markets. The benchmark Philippine stock index on Tuesday slid to the lowest since December after reaching a record last month.
The meltdown across financial markets is likely to prompt Bangko Sentral ng Pilipinas to put on hold any prior plans for tightening this week
BSP is among the most predictable in Asia on monetary policy. Former Governor Amando Tetangco communicated potential changes in advance and the last unexpected decision was in July 2012 when authorities cut interest rates.
The implementation last month of the tax law that raised levies on fuel, sugary drinks and cigarettes is boosting inflation. The surge in January prices was driven by food, beverages and tobacco.
Chicken Public transport groups and ridesharing companies Uber Technologies, Inc. and Grab are calling for fare hikes, while labor unions are also seeking an increase in minimum wages.
The central bank will be closely monitoring the situation and stands ready to take timely action, Espenilla said on Tuesday.
“We’re not ruling out a rate hike,” said Euben Paracuelles, an economist at Nomura Holdings, Inc. in Singapore, who forecast no change. “The BSP is very sensitive to the inflation targets being breached. Given the tax law and oil, they probably would realize that the inflation outlook will only drift higher this year, so the target is more at risk.” (Bloomberg)