Tetangco’s comment was in reaction to the recent US Federal Reserve rates’ cut of 25 basis points.

"The market has priced in (the) cut by the Fed," he said yesterday. "The suggestion that the move would be the end of the Fed’s current easing cycle would have important implications for emerging economies like the Philippines as it feeds into risk aversion biases of investors and ultimately the direction of capital flows between developed and emerging markets."

"(For) our part," Tetangco added, "we remain focused on ensuring a stable macro environment as a buffer to such changes by keeping inflation expectations well moored."

For the seventh time since September last year, the Federal Reserve cut US interest rate by a quarter-percentage point on Wednesday to protect its economy, which is still reeling from the credit crunch that started in 2007. Federal Funds rate now at two percent is the lowest since December 2004.

The BSP’s full year inflation target is 3-5 percent. As of the first quarter, inflation averaged above five percent. Tetangco has already warned the market this week that April inflation could go as high as seven percent, the highest since 2005. Inflation in March hit a 21-month high of 6.4 percent. Rising price of basic commodities and fuel costs jacked up inflation.

Tetangco said monetary policy stance will be adjusted once officials determine second-round effect on inflation due to wage and non-wage hikes. The BSP is assuming that the wage increase will not be higher than R25.

"We have to see how much the adjustment on wages is going to be," said Tetangcon in a previous interview. "We have incorporated some increase to the inflation forecast already but we have to know how much the final increase is. Last year, there was only a modest increase and this year, based on what is coming out from different groups, they’re asking for a bigger increase."

Tetangco said non-wage benefits will also have an impact on inflation. "If these are going to be in cash (for example) medical, transportation allowance expense, or subsidy, there will still be outlays. The bigger inflationary impact will be actual cash."

Sin Beng Ong, an economist with JP Morgan, said the US signal made it easier for Tetangco to raise rates by 25 basis points at the next monetary policy meeting on June 5, but even without such a hint an increase was likely due to rising inflation.

"I think the wage and inflation dynamics in the Philippines are much more worrisome than in the United States," he said.

The Philippine central bank kept its overnight borrowing rate at 5 percent and its lending rate at 7 percent last week but flagged a future increase if commodity-fuelled inflation spread to the broad economy, particularly through wage increases.