MANILA - Philippine inflation in June likely crept closer to the top end of the central bank's target band, building the case for the country's first rate hike in three years as early as this month.
The June data, to be released on Friday, will likely show inflation quickened to its fastest annual pace in more than two and a half years to 4.6 percent, according to a Reuters poll, due to rising food prices, including rice, and higher transport and fuel costs.
Policymakers gave an estimate of 4.1-5.0 percent for June inflation.
Inflation in the Philippines averaged 4.1 percent in the five months to May, way above the 3 percent average for the whole of 2013, due to tight supply conditions, partly triggered by weather disturbances.
Faced with mounting inflationary pressures, the Bangko Sentral ng Pilipinas (BSP) could be among the first in Southeast Asia to raise key benchmark interest rates when it meets on July 31 to review policy.
"The picture is still relatively mixed both for inflation and policy responses in the region. But if I am going to rank it to ones that are facing a lot more inflation pressures, the Philippines is the highest," said Euben Paracuelles, economist at Nomura in Singapore.
Malaysia could take the lead among Southeast Asian economies in lifting policy rates this year as it is expected to raise rates on July 10, the first in three years, partly to address financial imbalances such as high consumer indebtedness.
Elsewhere in Asia, Thailand reported on Tuesday that its headline inflation eased in June, helped by price controls imposed by the military junta and lower diesel prices, supporting views interest rates there will be kept steady through 2014.
Indonesia likewise saw consumer prices edge down last month, but its central bank has indicated it will continue to adopt a tight monetary policy to help stabilise the rupiah and lower the current account deficit.
Paracuelles expects the BSP to raise the overnight borrowing rate by a total 100 basis points this year, with the first quarter-point rate hike to be delivered this month, to protect its 3-5 percent inflation target this year and 2-4 percent for 2015.
But there is no unanimous view on the likely policy action by the BSP this month.
It has already taken some more modest measures to rein in liquidity in recent months.
Some economists think it will raise the rate on its short-term special deposit accounts (SDAs) for the second meeting in a row on July 31, instead of increasing the policy rate, if June inflation remains largely manageable.
BSP Governor Amando Tetangco told reporters late on Tuesday the central bank was "not committed to a pre-set course of action."
The overnight rate has been at a record low of 3.5 percent since October 2012 when it was cut by 25 basis points.
Last month, the BSP raised the rate on SDAs by 25 basis points, the first time it adjusted the rate in over a year, to contain liquidity growth and curb inflation pressures.
The move followed a total 2 percentage points increase in banks' required reserves at the two previous policy meetings in May and March.
At its June meeting, the central bank said the current reserve level at 20 percent, is on the "high side" and a further hike of it might not be good for markets.