Emerging economies may need quicker exit-Manila c.bank
MANILA, Feb 3 - Developing countries, including the Philippines, may have to exit easy monetary policy ahead of advanced economies to head off inflationary threats from capital inflows, a Philippine central bank official said.
The Philippines was the first in Southeast Asia to begin unwinding easy policy when it raised the rate on a short-term lending window last week, a move that came about two weeks after China tightened policy by raising banks' reserve requirements. [ID:nSGE60R05S]
"Inflation will be a very costly consequence of delayed exit of developed economies," deputy governor Diwa Guinigundo told reporters late on Tuesday. "So the challenge for emerging markets, particularly the Philippines, is to possibly make a quicker exit strategy given that emerging markets, particularly Asia, are leading global recovery."
Anaemic growth and heavy debt burdens across the West and Japan are encouraging an influx of capital inflows to developing Asia, increasing the risk of asset price bubbles forming.
While the Philippine central bank raised the rate on a short-term rediscounting facility last week, it kept its benchmark overnight borrowing rate at record low of 4 percent, saying inflation remained manageable and the local economy was not yet on solid ground.
Guinigundo said the central bank was studying when and how best to pull back the liquidity lifeline which policymakers put in place late in 2008 to protect the local economy from the global slump, but he added the measures would not be unwound at the same time.
"Inflation remains very benign...and market expectations are OK, so you don't expect the central bank to start raising rates, Guinigundo said, adding that the central bank might start by raising banks' reserve requirements or cutting back on liquidity support measures.
But central bank governor Amando Tetangco told reporters at the weekend authorities were wary of touching banks' reserve requirement because it was a blunt monetary tool that may hurt more sectors than warranted.
(For a factbox on Manila c.bank's liquidity enhancing measures, click on ID:nSGE60Q034)