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Manila: The Philippine central bank, which raised its benchmark interest rate by the most in more than seven years last week, has room to tighten monetary policy, Governor Amando Tetangco said on Monday.
"Present conditions provide latitude for monetary policy, with the buoyancy of aggregate demand suggesting room for a measured policy response,'' Tetangco told reporters in Manila.
"Appropriate rate hikes could reduce the long-term cost to output growth from prolonged inflation, which will be very corrosive to growth.''
Central banks from Vietnam to Pakistan, who have increased borrowing costs this year at the risk of stifling expansion as a US slowdown hurts growth in the region, may need to do more to cool prices.
The International Monetary Fund last week warned rich and poor countries alike that higher interest rates may be necessary to combat accelerating inflation.
Bangko Sentral ng Pilipinas raised the rate it pays banks for overnight deposits by half a percentage point on July 17 as it forecast inflation will exceed last month's 14-year high.
Growth probably accelerated to 5.6 per cent in the second quarter from 5.2 per cent in the first three months, it said.
Inflation, fuelled by record oil and rice prices, was 11.4 per cent in June. The rate may peak at 12 per cent in October, the central bank said last week. The Philippines buys almost all its oil from abroad and is the world's biggest importer of rice.
Last week's rate increase was the second in as many months. Bangko Sentral holds its next monetary policy meeting on August 28.
Peso could gain 6%
The Philippine peso may rise six per cent by year-end as overseas workers send more money home and the central bank raises interest rates, said Jose Sio, chief financial officer at the holding company of billionaire Henry Sy.
The currency will climb as high as 42 per dollar by December 31, said Sio at SM Investments, which owns the Philippines' largest shopping mall operator and its second-biggest local bank.
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