Two Southeast Asian central banks took divergent monetary paths Thursday, with Indonesia halting its policy tightening as price gains eased and the Philippines sticking with outsized interest-rate moves to tame still-hot inflation.
(Bloomberg) — Two Southeast Asian central banks took divergent monetary paths Thursday, with Indonesia halting its policy tightening as price gains eased and the Philippines sticking with outsized interest-rate moves to tame still-hot inflation.
Bangko Sentral ng Pilipinas raised its benchmark rate by 50 basis points to 6%, as predicted by 13 of 25 economists surveyed by Bloomberg. Bank Indonesia’s decision minutes later was a widely expected pause, as Governor Perry Warjiyo said the policy was tight enough at 5.75% to cool inflation without hurting the economy’s recovery.
Policymakers in the Philippines, home to Southeast Asia’s most-aggressive monetary tightening campaign that’s seen 400 basis-points of hikes since May, said more needs to be done to quell price pressures after a higher-than-expected inflation outturn in January. The BSP raised consumer price forecasts for the current year and the next, while seeing gains returning to its 2%-4% target only next year.
The rupiah extended an earlier gain over the greenback, rising 0.3% to 15,157 per dollar, while Indonesia’s benchmark stock index slipped 0.3%. The Philippine peso advanced 0.2% to 55.08 per dollar after the decision, reversing a decline of as much as 0.4% in early trade. Stocks settled 0.1% lower.
While noting that the hike was key to preventing price-growth from drifting further away from target, the BSP said the central bank can’t win the inflation fight on its own.
“The Monetary Board also reiterates its encouragement and support for timely and more aggressive whole-of-government actions to mitigate the impact of persistent supply-side pressures on food prices,” the BSP said in a statement. The call assumes significance, given President Ferdinand Marcos Jr. also oversees the agriculture ministry as part of his pledge to fix the country’s food problems.
Even as Philippine policymakers looked far from reining in inflation, Indonesia’s Warjiyo stopped short of declaring victory, as he said there’s “no need for any more hikes.” Both headline and core inflation are easing faster than initially expected, he added.
The comments from the central banks show the limitations of monetary policy in controlling supply-driven price pressures. While the Philippine endures supply disruptions that pushed food inflation in January to 10.7%, Indonesia’s government worked with local farmers to boost food supply, helping check inflation even as subsidies were rolled back last year.
That helped Bank Indonesia, which was among the last in the region to hike, to join Malaysia in standing pat after delivering 225 basis points of increments in this tightening cycle. Amid bets of a still-hawkish Federal Reserve, Philippine central bank Governor Felipe Medalla signaled more rate action, saying his personal view was for the BSP to desist from a pause or a 75-basis point move, leaving either a quarter- or half-point increase as choices.
What Bloomberg Economics Says..
The Philippine central bank signaled another 50-bp rate hike coming at its next meeting on March 23. Beyond that, we don’t think much more tightening will be needed.
— Tamara Mast Henderson, economist
For the full note, click here
“Given this new information and the obvious shift in tone from Governor Medalla, we now expect a 25 basis-point rate hike by the BSP at the March meeting with our forecast for BSP’s terminal rate at 6.25%,” said Nicholas Mapa, a senior economist at ING Groep NV.
–With assistance from Tomoko Sato, Michael J. Munoz, Cecilia Yap, Clarissa Batino, Karl Lester M. Yap, Ronojoy Mazumdar, Ditas Lopez, Grace Sihombing, Manolo Serapio Jr. and Yudith Ho.
(Wraps Philippine, Indonesia rate decisions.)
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