Philippine central bank chief hints at raising interest rates to control inflation

Wed, Jul 23 02:36 PM

MANILA, Philippines (AP) _ The Philippine central bank chief hinted Wednesday at further raising interest rates to control inflation, which has been driven to a 14-year-high by spiraling oil and food prices. The bank has twice raised rates, by a total of 75 basis points to 5.75 percent for overnight borrowing rates and 7.75 percent for overnight lending rates since annual inflation rates hit 11.4 percent in June.

Central bank Gov. Amando Tetangco told journalists the bank was prepared to take "all necessary actions" to tackle high inflation and promote price stability.

He said he expected inflation to average between 9 percent and 11 percent for the entire year and peak at 12 percent before easing in the last quarter. He said inflation would remain in the double-digit through the first quarter of 2009.

The U.S. economic slowdown and higher oil and food prices have prompted the government to lower the country's growth forecast this year to between 5.7 percent and 6.6 percent, from a range of 6.3 percent to 7 percent. The high cost of oil and food imports is also expected to raise the country's import bill by 10 percent.

The National Economic and Development Authority reported early this month that the price of cereals chiefly rice and corn increased by 42.2 percent in June from a year ago. Fuel prices climbed 22 percent while transportation and communication costs rose 12.4 percent during the same period.

The start of school in June also raised expenses for education, providing a significant boost to inflation, the agency said. "The biggest and most immediate challenge is the sharp spike in global oil and food prices," Tetangco told the Foreign Correspondents Association of the Philippines.

He said not even credit rating agencies or the International Monetary Fund had anticipated "the virulence and the length of the price spikes in oil and food." To prevent inflation from feeding a cycle of price and wage hikes, the central bank raised policy rates by 25 basis points in early June and by 50 basis points in mid-July, after it forecast a spike in baseline inflation this year and next, he said.

Tetangco said the central bank recognized the need for "more decisive monetary action" to reduce risks from prolonged high inflation. "Our eye is on inflation because price stability is critical to sustained, durable economic growth," he said.

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