Philippine central bank says to stay hawkish for a while

Philippine central bank Governor Eli Remolona said monetary policy will remain “hawkish for a while” and authorities could resume tightening if inflation comes in higher than expected.

“If the inflation rate doesn’t go down as projected, we have no choice,” Mr. Remolona said on the sidelines of FX Forum Manila on Thursday. “But what we are watching more than the inflation rate itself is the expectations; if they get de-anchored we’ll have to do something,” he said.

Mr. Remolona said the central bank expects inflation to continue slowing in November and to be “within striking distance from the target range.” Although still above the Bangko Sentral ng Pilipinas’ 2%-4% goal, inflation came in sharply slower than anticipated in October at 4.9%, providing policymakers room to pause.

The BSP left its target reverse repurchase rate at a 16-year high of 6.50% on Nov. 16 as inflationary pressures eased and the peso strengthened, after an off-cycle rate hike three weeks earlier.

The central bank’s policy will remain “hawkish for a while,” which Mr. Remolona said “means we’re not about to ease. We might even hike but we’ll see.”

The peso’s recent appreciation against the dollar is “not a major factor” in the central bank’s policy decisions, he said, adding the currency’s move is “not big enough to worry about.”

“A big move in the peso would be an issue but so far it’s strengthened a bit. We intervene if there’s some stress that need to be contained; we don’t see that,” the central bank chief said.

The BSP head reiterated that a rate cut is not on the table for this year and policy decisions will remain data-dependent. The Monetary Board is set to hold its last rate-setting meeting for the year on Dec. 14.

Philippine economic output grew faster than expected in the third quarter, even as consumer spending softened and investment declined after the BSP’s most aggressive monetary tightening in two decades.

Officials are optimistic that the Philippines will achieve the lower end of its 6%-7% GDP growth target for this year, remaining one of Asia’s fastest growing economies.

FX Forum Manila is organized by Bloomberg LP, the parent company of Bloomberg News. — Bloomberg