Business | Economy
Philippines slashes rates as strong peso curbs inflation
The Philippine central bank pared its overnight rates by 25 basis points on Thursday, as expected, as a strong peso and slowing money supply growth helped offset inflation pressure from rising fuel costs.
- Reuters
- Published: 00:09 November 16, 2007
Manila: The Philippine central bank pared its overnight rates by 25 basis points on Thursday, as expected, as a strong peso and slowing money supply growth helped offset inflation pressure from rising fuel costs.
The cut was the third reduction this year and analysts said the threat from rising oil prices, now hovering around $94 a barrel, limited the scope for more cuts in the near term.
Governor Amando Tetangco told reporters he expected inflation next year to remain near the lower end of a 3-5 per cent range and said inflation risks were "manageable".
But some economists detected a hardening of tone on price risks. "I think the central bank's comments were less dovish than recently," said Frances Cheung, economist with Standard Chartered Bank in Hong Kong. "I think he is acknowledging the upside risk to inflation from oil prices."
Seven out of 11 analysts had forecast the central bank would cut rates by 25 basis points this week.
Immediate effect
The cut takes effect immediately and brings the overnight borrowing rate to 5.5 per cent. The overnight lending rate was cut to 7.5 per cent from 7.75 per cent.
The peso, Asia's best-performing currency against the dollar so far this year, and a slowdown in money supply growth to a 17-month low in September of 11.4 per cent, have helped keep Philippine inflation in check.
Some analysts have said the central bank was also keen on cutting rates to ease the high cost of mopping up excess money from the banking system and tempering the peso's rapid rise.
The central bank clocked up a 31.5 billion peso loss in the first half of the year, its biggest deficit since the current monetary authority was founded in 1993, as it bought dollars flooding into the country. The central bank said it would maintain the wider availability of its short-term special deposit accounts, a tool it uses to mop up domestic liquidity.
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