Philippines’ finance minister says no reason for rate hike

MANILA (Reuters) – The Philippine central bank has no reason to raise interest rates further as domestic inflation is easing, the country’s finance minister said ahead of a May 18 monetary policy meeting.

Finance Secretary Benjamin Diokno reiterated his stance against a rate hike when he spoke to reporters. But he said he was just expressing his opinion and was only one of the seven monetary board members who will each vote during Thursday’s decision-making.

“I’m for a pause, that’s my opinion. Inflation is going down, huge (foreign exchange) reserves, the current account deficit has expanded but it’s financially manageable and that’s because of the improved economy, infrastructure spending,” he said. “So over all, there’s no reason why we should increase the rates.”

The Bangko Sentral ng Pilipinas (BSP) has raised rates by a total of 425 basis points since May last year to fight inflation, the full impact of which Diokno said had yet to be absorbed by the economy considering that monetary policy often works with a long lag.

Philippine annual inflation eased for a third straight month in April to 6.6%.

BSP Governor Felipe Medalla himself has said the month-on-month inflation trends in particular “present an even stronger argument” for keeping rates unchanged at the May 18 policy meeting.

Some economists believe the inflation downtrend and cooling economic growth have built the case for the BSP to pause in its tightening cycle.

However, the International Monetary Fund said on Friday that with risks to inflation remaining on the upside, “a continued tightening bias maybe appropriate until inflation falls decisively within the 2-4% target range”.

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