Central bank to focus on flows, domestic economy


Posted at Jun 26 2008 12:53 PM | Updated as of Jun 26 2008 08:53 PM


MANILA - The central bank will focus on domestic economic developments and capital flows when it sets monetary policy, Gov. Amando Tetangco said on Thursday.
Tetangco was reacting to the US Federal Reserve's decision on Wednesday to leave interest rates unchanged. The Fed signalled it was in no hurry to raise rates, even though it voiced concern about inflation.

"We would continue to monitor the direction of short-term capital flows as well as other domestic developments to ensure that our inflation expectations are contained," Tetangco said in a text message to reporters.

Markets often expect the Philippine central bank to match US rate moves to maintain a yield gap, but the central bank is expected to raise borrowing costs again this year, possibly next month, because inflation hit a nine-year high of 9.6 percent in May.

Prices are expected to rise further and inflation may peak at 10-11 percent in the third quarter, Tetangco has said.

Earlier this month, the central bank raised rates by 25 basis points, the first increase in nearly three years.

The Fed has cut rates aggressively since last September to support the US economy, which has been hit by a crisis in the housing market and credit markets.