MANILA: The Philippine central bank on Wednesday signalled it may raise policy rates this week to combat inflation in spite of concerns growth may slow due to Japan's disaster and instability in the Middle East.
Governor Amando Tetangco stopped short of saying the era of record low interest rates was coming to an end but noted the need to keep inflation expectations in check.
He said any rate adjustment would be done gradually.
"We have seen an uptick in inflation, we have also seen inflation expectations tilt to the upside...so given all of these developments the scope for maintaining interest rates has clearly narrowed," Tetangco told reporters.
"We will take the necessary pre-emptive action to make sure that inflation expectations are not unhinged."
Cayetano Paderanga, the country's economic planning chief, told reporters separately the government may lower this year's growth target range of 7 to 8 percent, which is above estimates by most analysts as well as the World Bank and Asian Development Bank.
Asked if the 2011 growth goal would be cut, Paderanga said: "It could be, or it could be that you keep the same target but allow for a wider range of possibilities."
The government has said it needs more time to assess the impact of a potential slowdown in trade and development loans from disaster-stricken Japan, its major trading partner, and reduced remittances from Filipinos working in the Middle East and North Africa.
Tetangco said growth of 5 to 6 percent for the Philippines this year would be "reasonable." The economy grew 7.3 percent in 2010, the fastest in more than three decades.
PRE-EMPTIVE ACTION
Analysts polled by Reuters this month said they expected the central bank to raise the main interest rate by 25 basis points from a record low of 4 percent when it reviews policy on Thursday, with the 2011 inflation goal at risk of being breached.
Policymakers forecast average 2011 inflation at 4.4 percent and 3.5 percent in 2012 at the previous policy meeting in February, but Tetangco said both estimates will be reviewed on Thursday.
Manila is targeting an annual inflation rate of 3 to 5 percent for this year and again in 2012.
A benign inflation environment last year has allowed the central bank to delay monetary tightening, leaving the Philippines as the only major economy in Asia not to have lifted rates since the end of the global financial crisis.
Tetangco said the economic landscape has changed this year, with the global economic recovery gaining steam and emerging markets, like the Philippines, facing mounting inflationary pressures.
"Economies abroad have started to recover...the conclusion was that the global recovery is confirmed," Tetangco said.
"At the same time we have inflation pressures here in the Philippines and throughout the world, particularly in emerging markets which have led the economic recovery," he said.
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