RP central bank to raise rates again: governor

ABS-CBN News

Posted at Jun 20 2008 05:33 PM | Updated as of Jun 21 2008 01:33 AM

Agence France-Presse

The Philippine central bank is likely to further tighten monetary policy this year as inflation surges to almost 10-year highs, its governor said in an interview Friday.

"Price stability is paramount," Bangko Sentral ng Pilipinas governor Amando Tetangco told Dow Jones Newswires.

"There is still going to be inflation pressure in the coming months (from high oil and food prices), but it should start coming down in the fourth quarter."

Annual inflation surged in May to 9.6 percent, its highest since January 1999, forcing the central bank to raise rates for the first time in two years with a 25-basis point increase in overnight rates on June 5.

Economists expect the central bank to raise rates by as much as 100 basis points this year, including the latest increase.

Tetangco said the economy could absorb further increases in interest rates.

"The economy is in a position to withstand a measured policy adjustment if needed in the months ahead," he said, adding that the country had a steady surplus in both the balance of payments and in the current account.

Overseas workers' remittances will also hit a record 15.9 billion dollars this year, up 10 percent from last year, he said.

Tetangco's expectations for a lower pace of inflation in the fourth quarter are in line with his forecast for a recovery of the peso during the same period.

"The weakness of the peso is temporary. There should be a recovery in the fourth quarter," said Tetangco. "If you look at the BOP (balance of payments), there is fundamental support for the peso."

The dollar has risen eight percent against the peso so far this year.

The Philippines imports around 110 million barrels of oil a year, and surging energy prices have significantly fanned inflation.