Philippine Central Bank Governor Faces His First Big Policy Test

Nestor Espenilla, governor of the Bangko Sentral ng Pilipinas. (Photo: Getty Images)

By Yumi Teso, Siegfrid Alegado and Andreo Calonzo

Philippine central bank Governor Nestor Espenilla faces his first major test on Thursday: striking a balance between curbing inflation and calming financial markets.

Inflation is at the highest in more than three years, the currency is under pressure and investors are fleeing emerging markets. Espenilla has to decide whether now is the right time to tighten monetary policy for the first time since 2014 to prevent one of Asia’s fastest-growing economies from overheating.

“Bangko Sentral ng Pilipinas may finally deliver on rate hikes after the spike in inflation to 4 percent,” said Eugene Leow, a fixed-income strategist at DBS Group Holdings Ltd. in Singapore. “With sentiment already jittery, higher rates may actually instill confidence in peso assets.”

Thirteen of the 17 economists surveyed by Bloomberg predict the benchmark rate would be held at 3 percent, with the rest forecasting an increase to 3.25 percent. The Philippines is among the top inflation-targeting central banks in Asia and its credibility now rests on the governor, who took office in July.

Policy makers in Asia face pressure to follow the U.S. in tightening monetary policy with Malaysia raising rates in January. The sell-off in global stocks and emerging-market currencies are complicating the job of central bankers who seek to preserve stability while anchoring inflation and growth expectations.

The peso has lost 3 percent this year, among the worst-performing currencies in emerging markets. The benchmark Philippine stock index on Tuesday slid to the lowest since December after reaching a record last month.

What Our Economists Say…

The meltdown across financial markets is likely to prompt Bangko Sentral ng Pilipinas to put on hold any prior plans for tightening this week.Read more: For Bangko Sentral ng Pilipinas, Markets May Outweigh Inflation–  Tamara Henderson, Bloomberg Economics

Bangko Sentral ng Pilipinas is among the most predictable in Asia on monetary policy. Former Governor Amando Tetangco communicated potential changes in advance and the last unexpected decision was in July 2012 when authorities cut interest rates.

The implementation last month of the tax law that raised levies on fuel, sugary drinks and cigarettes is boosting inflation. The surge in January prices was driven by food, beverages and tobacco.


Walking around the cramped alleys of Mega Q-Mart, one of the largest wet markets in Manila, Nenita Villamor lamented that prices of goods like chicken have gone up. The mother of six has stopped buying poultry as the cost has risen more than 10 percent in recent weeks.

“I cook vegetables for my family instead of chicken which has gotten more expensive,” she said. “We miss it but we can’t afford it now. The vendors say the price increase is because of new taxes.”

Public transport groups and ride-sharing companies Uber Technologies Inc. and Grab are calling for fare hikes, while labor unions are also seeking an increase in minimum wages.

The central bank will be closely monitoring the situation and stands ready to take timely action, Espenilla said on Tuesday.

“We’re not ruling out a rate hike,” said Euben Paracuelles, an economist at Nomura Holdings Inc. in Singapore, who forecast no change. “The BSP is very sensitive to the inflation targets being breached. Given the tax law and oil, they probably would realize that the inflation outlook will only drift higher this year, so the target is more at risk.”


To contact the reporters on this story: Yumi Teso in Bangkok at; SiegfridAlegado in Manila at; Andreo Calonzo in Manila at

To contact the editors responsible for this story: Nasreen Seria at; Karl Lester M. Yap, Clarissa Batino

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