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High core inflation keeps pressure for more rate hikes.

The Philippines' core inflation held at 17-month highs, data showed on Wednesday, suggesting that the central bank will maintain its hawkish policy bias, and perhaps raise rates again before year-end to quell price pressures.

Bangko Sentral ng Pilipinas Governor Amando Tetangco said policymakers remain vigilant of inflation risks and will adjust interest rates if required.

"The BSP (central bank) will make adjustments to policy levers as conditions warrant," Tetangco said in a mobile text message to reporters.

The governor's comments came after the Philippine Statistics Authority said on Wednesday that headline consumer price inflation eased to 4.4 percent in September - the lowest in five months - driven by declines in food and fuel costs. Economists in a Reuters poll had expected a 4.5 percent rise.

But core inflation, which takes out volatile items in the consumer basket and measures the underlying trend in prices, was unchanged at a 17-month peak of 3.4 percent.

"The increase in core inflation is worrisome and suggests second round effects are becoming apparent sooner and may be stronger than anticipated. Further interest rate tightening will be required," said Eugenia Victorino, economist at ANZ, in a research note.

Victorino retained her forecast that the central bank will hike both the main policy rate and SDA rate by 25 basis points this month to stay on top of inflation.

Analysts also noted risk of headline inflation breaching the top-end of the central bank's 2-4 percent target for 2015.

Rahul Bajoria, economist at Barclays in Singapore, said that policymakers will probably pause their tightening cycle until early next year.

"We believe further rate hikes will depend on the data, and with (September) inflation surprising on the downside, risks of another hike in October seem somewhat contained," Bajoria said.

The central bank has two more meetings left for 2014, one on October 23 and the other on December 11. It tightened policy for a fifth time in a row on Sept. 11 by raising both the overnight borrowing rate and the rate on its short-term special deposit accounts (SDAs) by 25 basis points each.

Policymakers have said the economy was strong enough to absorb the impact of higher borrowing costs. Growth in the June quarter was 6.4 percent, the fastest in Asia after China and on par with Malaysia, driven by strong consumer spending, manufacturing and exports.

The central bank expects average 2014 inflation of 4.5 percent against 4.3 percent previously, and 3.8 percent in 2015 versus a previous forecast of 3.7 percent. It has a 3-5 percent inflation target this year.


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Title Annotation:Business News
Publication:Manila Bulletin
Date:Oct 8, 2014
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