Manila central bank mulling how to end easing cycle

The Philippines' central bank chief on Friday again signalled that investors could expect an interest rate cut next week as the bank considers when to join Asian peers in halting the monetary easing cycle. "It is not the time to implement an exit strategy at this time. But we are thinking about it and we are looking at the medium term on how we would end this easing cycle," Governor Amando Tetangco told reporters. "You have to be ready."
"At this point, we are on an easing mode." It was the first time that he talked about an exit strategy and suggested the bank is close to stopping rate cuts. While inflation remained on a steady decelerating path and is widely expected to slow to a 22-year low in June, analysts said pressure to stick to an easy policy was waning.
"I think the pressure on the central bank to react with an aggressive monetary policy stimulus has eased considerably," said Radhika Rao, economist at IDEAglobal in Singapore. Any further adjustments might be done through the central bank's rediscounting facility, said Rao, adding it is unlikely the monetary authority will tweak banks' reserve requirements. "I would think they would go for non-rate measures rather than tweak the policy rate," she said.
Prior to Tetangco's comments, analysts were predicting the central bank would stop rate cuts after a 25 basis point reduction at its July 9 meeting - its sixth straight cut since December, according to a Reuters poll.
Vishnu Varathan, economist at Forecast Pte in Singapore, said inflation may be on a downtrend but there were valid price risks to consider, mostly coming from volatile oil prices. "The inflation downside thus far is in some part owed to base effects, and as such, expectations of a reversal of this effect are a consideration, even on arguments of anchored inflation expectations."
Other Asian central banks have already paused and only Indonesia and the Philippines are still on a rate cutting cycle, analysts say. Tetangco's statement that it was not yet time to launch an exit strategy were likely to dampen bond yields on Monday, debt traders said, although investor concerns on the government's ballooning budget deficit, set to hit a record of 250 billion pesos ($5.2 billion) this year, would limit the fall. Philippine bond yields were steady on Friday and for most of the week, with investors staying on the sidelines ahead of the rates meeting.