Philippines May Raise Interest Rates Even as Inflation Peaks

By Max Estayo

Sept. 8 (Bloomberg) -- The Philippine central bank said it's too early to rule out further increases in borrowing costs even as it predicts inflation will ``peak'' at less than 13 percent this month or next.

``It's too early to tell'' if the bank will stop raising interest rates, Deputy Governor Diwa Guinigundo said in an interview after addressing senators at a hearing in Manila today. ``Volatile global commodity prices remain an upside risk,'' he said at the hearing.

Bangko Sentral ng Pilipinas has raised its benchmark interest rate 1 percentage point to 6 percent since early June, as record crude oil prices pushed inflation to a 16-year high. The central bank joined others in the region in choosing to fight inflation at the risk of damping growth, which was the slowest in three years in the second quarter.

The effect of the rate increases on economic growth has been ``subdued,'' Guinigundo said. Commercial lenders have only raised their lending rates by about 0.4 percentage point since the central bank increased the rate it pays them for overnight deposits, he said.

Philippine consumer prices climbed 12.5 percent in August from a year earlier after rising a revised 12.3 percent in July.

To contact the reporters on this story: Max Estayo in Manila at mestayo@bloomberg.net; Francisco Alcuaz Jr. in Manila at falcuaz@bloomberg.net