Monetary Authorities Mulling Policy Shift
The Philippines is stepping up its battle against surging capital inflows with a plan to shift to a multiple interest-rate policy regime, as stocks at a record and the peso near a five-year high heighten asset-bubble risks.
Bangko Sentral ng Pilipinas will probably use the rate on special deposit accounts and the overnight lending rate to supplement its benchmark as tools to guide policy, according to Australia & New Zealand Banking Group Ltd., Citigroup Inc. and Nomura Holdings Inc. All 16 economists in a Bloomberg survey predict the key borrowing rate will stay at 3.5 percent tomorrow.
Governor Amando Tetangco, who has imposed limits on lenders' currency forward positions and expanded monitoring of real estate loans to fight inflows, said yesterday the central bank is moving to an interest-rate corridor approach. Capital volatility poses a risk for Asia-Pacific economies, Standard & Poor's said last week, raising the potential for asset and credit bubbles 15 years after the 1997-98 financial crisis.
"The Philippines is under pressure to adjust its monetary policy approach to deter capital inflows" and reduce the cost of absorbing excess funds in the financial system, said Johanna Chua, Hong Kong-based head of emerging Asia economic research at Citigroup. "Traditional inflation targeting with a single interest rate as its main policy tool is now being challenged because of abundant global liquidity and further monetary accommodation in advanced economies."
The Philippine stock index has risen almost 17 percent this year and climbed about 300 percent since October 2008, making it the world's biggest equity bull market. The peso has strengthened about 7 percent in the past two years, the best performer among emerging-market currencies tracked by Bloomberg. …