Business | Economy
Rate cuts could end as wages stoke inflation
Philippine inflation may accelerate at a faster pace than targeted as workers seek higher wages amid record oil and rice prices, the central bank said, reinforcing expectations it may be done cutting interest rates.
- Bloomberg
- Published: 00:33 April 19, 2008
Manila: Philippine inflation may accelerate at a faster pace than targeted as workers seek higher wages amid record oil and rice prices, the central bank said, reinforcing expectations it may be done cutting interest rates.
"The 2008 target is fraught with risks," Bangko Sentral Pilipinas Deputy Governor Diwa Guinigundo said. "The hump is proving to be higher and probably longer," he said, referring to a surge in prices.
Proposals to increase daily wages by as much as 22 per cent and fares of jeepneys, the most common form of public transport, by 6 per cent could further stoke prices in a nation that imports almost all its oil and is the world's biggest rice buyer. Faster inflation gives the central bank less scope to ease borrowing costs after cutting the benchmark interest rate from 7.5 per cent in July to a 16-year low of 5 per cent in January.
"A hostile wage development will stir fear that a home-grown inflation spiral has dawned and stop the central bank in its easing path," Simon Wong, an economist at Standard Chartered Bank in Hong Kong, said in a note. "At a time when the business sector is faced with a collapse in US demand, rising wage costs and interest rates are the last things the economy needs."
Bonds
All 13 economists in a recent survey expect the central bank to keep its over-night borrowing rate at 5 per cent when it meets on April 24. Five-year government bond yields rose 15 basis points yesterday afternoon after falling earlier in the day. Seven-year bonds had their worst week in 22 months and the peso ended the week at a four-month low.
Rice futures surged for a fifth day, extending a rally to a record $24.235 per 100 pounds on the Chicago Board of Trade in after-hours trading Thursday. Crude oil was little changed in New York after reaching an all-time high of $115.54 a barrel on Saturday.
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