World Economy

Philippines Heads for Biggest Rate Hike in Decade

Philippines Heads for Biggest Rate Hike in Decade Philippines Heads for Biggest Rate Hike in Decade

The question facing policy makers in the Philippines is not whether to raise interest rates for a third time in a row, but by how much.

A booming economy, surging inflation and pressure on the currency are setting the stage for a 50 basis-point increase in the benchmark rate to 4% on Thursday, according to most of the 17 economists surveyed by Bloomberg.

That would be the biggest hike since 2008 and follows a similar move by Indonesia as central banks in emerging markets take more aggressive steps to curb the fallout from rising US rates and a stronger dollar.

“With rising inflation and inflation expectations, the central bank will likely implement a more aggressive rate increase,” said Euben Paracuelles, an economist at Nomura Holdings Inc. in Singapore, who penciled in a half-point increase. “We also expect that they will leave the door open for more rate hikes.”

Facing criticism that the central bank was too slow to act, Governor Nestor Espenilla has been preparing the markets for more decisive action, saying he’ll take “strong” steps to rein in inflation after it climbed above 5%. With data on Thursday set to show the economy sustained growth of more than 6% in the second quarter, a rate hike is all but sealed.

Despite the recent rate increases, the economy is expected to remain strong, supported by the government’s massive infrastructure program and robust consumer spending. The economy expanded a revised 6.6% in the first quarter from a year earlier, the statistics agency said on Wednesday.

 Regional Tightening

Other central banks in Asia are also tightening monetary policy. Indonesia has raised its benchmark rate by 1 percentage point since May, while India increased its policy rate a second time this year in August.

In the Philippines, higher global oil costs, an increase in levies on fuel, sugary drinks and cigarettes and record rice prices boosted inflation to a five-year high of 5.7% in July.

Inflation is set to breach the central bank’s 2% to 4% target band in 2018, with the peso’s more than 5% slump against the dollar this year adding to concerns. The peso fell 0.1% to 53.065 per dollar on Wednesday, while the benchmark stock index gained 1.1%.

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