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by Chino S. Leyco Reporter
MONETARY policy remains too
loose, UBS Investment Research said at the same time it projected
that the Bangko Sentral ng Pilipinas (BSP) may raise key interest
rates over the next 12 months.
Edward Teather, UBS economist,
said more monetary tightening will be needed to stabilize inflation
that already breached the double-digit level, raise interest rates
and halt the peso’s decline, which is now the second worst
performing currency in Asia.
“We now look 200 basis points
of tightening in total, taking the BSP’s overnight reverse
repurchase agreements policy rates to 7 percent,” he said.
This tightening, Teather said,
will come at the expense of some growth in next year, “but
stabilizing the currency and inflation risk are the key goals the
Philippine authorities should and will hold to in the coming
months.”
For this year, UBS projected that
the central bank will raise its policy rates by 125 basis points and
the remainder 75 basis points for next year. Current overnight
borrowing and lending rates are at 5.25 percent and 7.25 percent,
respectively.
Consumer prices surged to 11.4
percent last month, with core inflation rising to 6.6 percent, with
almost every major subcomponent putting further pressure on
inflation expectation.
“The message is that investors
believe monetary policy remains too loose and real interest rates
unattractive,” Teather said.
The central bank has already
signaled its intention to further tighten monetary policy consistent
with its inflation target.
“We share the view that current
oil and food prices are hardly sustainable. Demand pressures will
moderate as monetary policy is generally tightened,” BSP Governor
Amando Tetancgo Jr. said.
The central bank meets on July 17
to review monetary policy.
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