Philippines central bank says can pause rate hikes as CPI slows

MANILA: The Philippine central is likely to leave interest rates on hold for the rest of the year, given easing inflation and slowing money supply growth, before it resumes raising them next year ahead of policy tightening by the US Federal Reserve.

Bangko Sentral ng Pilipinas Governor Amando Tetangco said on Wednesday the central bank can pause its tightening cycle after data on Wednesday showed inflation slowed for a second straight month in October.

Growth in money supply, which rose at its slowest annual pace in over a year in September, also supported views the central bank would stand pat on rates at its last meeting for the year on Dec. 11.

"These developments give us room to pause," Tetangco told reporters in a mobile text message, giving his strongest hint yet the central bank would wait on the sidelines at least for the rest of the year.

Lower food and fuel prices helped bring down consumer price index growth to 4.3 percent, the slowest in six months, but slightly above economists' 4.2 percent estimate in a Reuters poll.

Prices of food and non-alcoholic drinks rose 7.0 percent, the smallest increase in five months. Food prices saw their smallest rise since May. Food accounts for 39 percent of the consumer price basket.

The housing, water, electricity, gas and other fuels index has been in the negative territory for most part of the last five months. "We expect the central bank to pause until the middle of next year," said RBS economist Vaninder Singh.

"With the US Fed tightening or expectations of Fed tightening, we see volatility in currency and that would push BSP (central bank) to raise rates." After five consecutive tightening moves, the central bank on Oct. 23 left the overnight borrowing rate and the rate on its special deposit accounts steady at 4.0 percent and 2.5 percent, respectively.

The central bank expects inflation to slow to an average of 3.7 percent next year after a projected 4.4 percent rate in 2014. It has a 3-5 percent inflation target this year and 2-4 percent next year.