The Philippines is unlikely to raise interest rates before the second half of 2022 even as the US and some Asia-Pacific economies start lifting rates from rock-bottom lows reached during the Covid-19 pandemic.
Benjamin Diokno, governor of the Bangko Sentral ng Pilipinas, said the central bank could afford to be “patient” because of its strong foreign reserves and falling inflation and because Manila wanted room for manoeuvre in the event coronavirus cases surged again.
“What if I raise interest rates now and then later I have to cut because the Covid situation is not under control?” Diokno said in an interview with the Financial Times. “We might as well wait and see what’s happening because there’s so much uncertainty.”
The Philippines had the “luxury of waiting” on raising rates, he said, because inflation, which eased to 3 per cent year on year in January from 3.2 per cent in December, was becoming “tamer and tamer”.
“I would be willing to bet that we will not adjust our rates for the first half of this year,” Diokno said. “And I’m supported by our monetary board, which is the policymaking body.”
The Filipino official spoke at a time when most economists and monetary officials expect the US Federal Reserve to begin raising rates repeatedly to quell rising prices that have been blamed on disruptions of supply chains and the labour market.
In Asia, South Korea became the first big economy to increase rates since the start of the pandemic in August, and after two further rises, its lending rates have regained pre-pandemic levels. New Zealand’s central bank raised rates in October and November.
The Philippine economy, which relies largely on remittances from overseas workers and business outsourcing activities such as call centres, alongside traditional industries including farming and fishing, suffered one of Asia’s sharpest contractions during the pandemic because of strict lockdowns.
As restrictions eased, gross domestic product rebounded 7.7 per cent in the last quarter of 2021, bringing full-year growth to 5.6 per cent, in line with pre-pandemic trends. The central bank now expects the economy to grow at 7-9 per cent this year and 6-7 per cent in 2023 and 2024.
Diokno said the “usual reaction” to rate rises by the Federal Reserve was an outflow of foreign exchange. However, he said, the Philippines would be buffered by “huge” gross international reserves equivalent to more than 10 months’ worth of imports.
Remittances from Filipinos working overseas, revenues from the outsourcing industry and foreign direct investment all rose last year compared with 2020, according to the central bank.
Diokno’s term ends next year, after a new president takes office. Rodrigo Duterte’s presidential term expires in mid-2022, and early opinion polling shows Ferdinand “Bongbong” Marcos Jr as the clear leader among candidates.
He is running with Duterte’s daughter Sara as his vice-presidential candidate. Campaigning for the May vote kicked off officially last week.
Diokno said that the central bank, as an independent institution, could “work with anybody”, and that he expected no big changes in economic policy. “Our guess is that there will be no major change in policy direction.”