Philippine Inflation Slows, Giving Room to Keep Record-Low Interest Rates

Philippine inflation slowed for a second month in June, giving the central bank room to keep its key interest rate at a record low to help President Benigno Aquino boost economic growth.

Consumer prices rose 3.9 percent from a year earlier, easing from 4.3 percent in May, National Statistics Office said today in Manila. The median estimate of 12 economists surveyed by Bloomberg News was for a 4.3 percent gain.

The central bank has “flexibility” ahead of a monetary policy meeting next week and inflation targets for 2010 and 2011 are “fairly safe,” Governor Amando Tetangco said after the report. Bangko Sentral ng Pilipinas has kept its benchmark rate at 4 percent since July 2009.

“Fuel, food inflation was relatively moderate in the month of June,” Edward Teather, an economist at UBS AG in Singapore, said before the figures were released. “There isn’t a great deal of pressure on the central bank to really push interest rates up. I think you may see one or two tentative adjustments before the end of the year.”

The previous government predicted 5 percent to 6 percent growth this year, from 1.1 percent in 2009, after reporting a first-quarter expansion of 7.3 percent. Aquino, who took office last week, has called the first-quarter pace a “flash in the pan” while pledging to attract investment to reduce unemployment.

Negative News Abates

“Negative news from Europe seems to have abated, translating in reduced volatilities in the commodity and foreign-exchange markets,” Tetangco said in a mobile phone message today. “Nevertheless, we will have to be watchful of demand conditions on the domestic front as well as official action from the major central banks to see if any changes need to be made on the current policy stance,” he said.

Deputy Governor Diwa Guinigundo said last week that “it’s not yet time” to raise the rate because the peso’s strength and falling crude oil prices are helping keep inflation within the bank’s 3.5 percent to 5.5 percent target.

Low rates would also make it cheaper for the government to finance its budget deficit, which the previous administration said would be little changed from last year’s 298.5 billion peso ($6.4 billion) record.

The government may sell an initial 20 billion pesos to 30 billion pesos of bonds targeted at individual investors this quarter, Deputy Treasurer Eduardo Mendiola said yesterday.

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

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