The Philippine central bank isn’t in a race to raise interest rates, incoming governor Nestor Espenilla said, despite economists’ predictions the country will be the first in Southeast Asia to do so.
“It’s not a race to raise interest rates,” Espenilla, 58, deputy governor in charge of bank supervision, said in an interview on Thursday. “Is it time to raise interest rates? We are reviewing the situation right now. Are we behind the curve? I don’t think so,” he said. Espenilla will take office in July for a six-year term.
Espenilla’s governorship comes at a challenging time. President Rodrigo Duterte has just placed the southern island of Mindanao under martial law, inflation pressure is rising as the economy grows more than 6 percent, and the peso is trading near a 10-year low. Economists predict the bank will raise rates from a record-low as early as next quarter, the first in Southeast Asia.
Inflation is expected to ease after peaking in the third quarter and price gains will average within the target range this year, Espenilla said in his office in Manila. Food prices and fuel and energy costs seem to be stabilizing while the impact of possible changes to tax laws will be short term, he said.
“Do we need to act based on that?” Espenilla said. “It would suggest we shouldn’t” even as policy makers are reevaluating options all the time, he said.
Bangko Sentral ng Pilipinas (BSP) will next meet on June 22 to decide on policy, the last under outgoing Governor Amando Tetangco. The central bank targets price gains to average 2 percent to 4 percent from 2017 to 2020. Inflation held at 3.4 percent in April, matching the pace in March which was the fastest since 2014.
The Philippine economy, among the world’s fastest growing, has strong buffers and martial law does not pose a big threat, Espenilla said.
“The government is clearly acting decisively to address a peace and order problem,” he said. “The declaration of martial law, per se, in my view, doesn’t threaten the stability nor the prospect of our economy.”
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Authorities will keep an open banking sector with eight Asian lenders actively interested in coming in, Espenilla said.
“I believe we will see some combination of branching and acquisition,” he said. “There’s a chance that this will materialize this year.”
The incoming governor sees more opportunity to ease restrictions on foreign-exchange rules and plans to change the way banks’ reserve requirements are managed.
“If you have a foreign-exchange regime that isn’t so transparent, then it tends to reward those who have agility to navigate the system,” he said. “As you send out the message that it would be easy to both get in and out of foreign-exchange positions, in my mind, that’s confidence building.”