Philippine Growth Unexpectedly Quickens to Fastest Pace in Three Years
Benigno Aquino, Philippine president
Edwin Tuyay/Bloomberg
Benigno Aquino, who took office in June, plans to increase government spending to a record next year to expand the economy by 7 percent to 8 percent annually from 2011.
Benigno Aquino, who took office in June, plans to increase government spending to a record next year to expand the economy by 7 percent to 8 percent annually from 2011. Photographer: Edwin Tuyay/Bloomberg
Aug. 25 (Bloomberg) -- Prakriti Sofat, a regional economist at Barclays Capital in Singapore, talks about the outlook for Asia's economies. Thailand’s economy expanded more than estimated last quarter as surging exports countered the impact of political turmoil, supporting gains in the nation’s currency and stocks. The Philippines reports second-quarter gross domestic product figures tomorrow. Sofat speaks with Bloomberg's Rishaad Salamat. (Source: Bloomberg)
The Philippine central bank refrained from raising interest rates from a record low, citing the risk of slowing global growth even after the Southeast Asian nation’s economy expanded at the fastest pace in three years.
Bangko Sentral ng Pilipinas left the rate it pays lenders for overnight deposits at 4 percent for a 10th meeting, it said in a statement in Manila today. Gross domestic product increased 7.9 percent from a year earlier last quarter, compared with a revised 7.8 percent gain in the three months through March, a report showed earlier.
Easing inflation has allowed Bangko Sentral to keep its key rate unchanged for more than a year, even as Thailand, Malaysia and India moved to counter the threats of asset bubbles and rising prices. Exports from Asian countries have cooled amid faltering recoveries in the world’s biggest economies, and the Philippine central bank said today its policy is consistent with supporting growth amid “uncertainties” in global prospects.
“Clouds are forming on the global economic horizon and more certainty is needed about the direction of the world economy before policy will be adjusted,” said Frederic Neumann, a Hong Kong-based economist at HSBC Holdings Plc. The central bank “can afford to relax and await more data given that inflation remains well behaved.”
Inflation held at a seven-month low of 3.9 percent in July and the central bank said today price gains from this year to 2012 will likely be within target, even as it raised its 2010 forecast to 4 percent from a previous 3.9 percent. Consumer- price gains in August is forecast at 3.6 percent to 4.5 percent, Governor Amando Tetangco said.
Favorable Inflation
“Monetary policy settings remain appropriate, given the favorable inflation profile,” Bangko Sentral said in its statement. “The BSP’s efforts to promote low and stable inflation are therefore consistent with the maintenance of supportive conditions for domestic economic growth amidst lingering uncertainties surrounding global economic growth prospects.”
The Philippine benchmark interest rate is at the lowest level since central bank data started in 1990. The decision to hold the rate was expected by all 15 economists surveyed by Bloomberg News.
Stocks and the peso rose today after the GDP report showed growth unexpectedly accelerated last quarter as consumer and government spending increased. The Philippine benchmark stock index jumped the most in seven weeks and four-year bond yields slid to a record-low. The peso rose 0.2 percent to 45.15 a dollar, extending its gains this year to more than 2 percent.
‘Sweet Spot’
“The Philippines is enjoying a sweet spot,” said Rafael Algarra, treasurer at Security Bank Corp. in Manila. “Growth is quite good while inflation is still quite low and that should be positive for our assets. The peso has room to strengthen.”
Full-year growth may exceed the government’s 5 percent to 6 percent goal, Economic Planning Secretary Cayetano Paderanga said today. The budget deficit this year may be smaller than the record 325 billion-peso ($7.2 billion) government forecast as faster expansion may boost revenue, he said.
Still, a faltering global recovery and the killing of tourists in a bus hijacking this week may hamper Philippine President Benigno Aquino’s pledge to attract investments and create jobs to cut poverty.
Weaker-than-estimated economic growth in Japan and the U.S. and slower expansion in China are adding to signs that the global rebound is losing momentum. Philippine export growth eased in the second quarter after exceeding 40 percent in the previous three months.
Bus Hijack
Former police inspector Rolando Mendoza seized a bus carrying 25 people on Aug. 23 to protest his dismissal on extortion charges, leading to the deadliest attack on visitors in Philippine history. Eight tourists from Hong Kong died, casting a shadow on the government’s plan to double the size of the tourism industry, Aquino said, and Finance Secretary Cesar Purisima said it will probably hurt tourist arrivals.
“The central bank is trying to avoid any movement at the moment until it’s clear that there will no double-dip recession in the U.S.,” said Roland Avante, treasurer of Sterling Bank of Asia in Manila. “That’s the greatest fear right now especially given recent data.”
Aquino, who took office in June, plans to increase government spending to a record next year to expand the economy by 7 percent to 8 percent annually from 2011 after growth slid to an 11-year low of 1.1 percent in 2009. He’s seeking to boost incomes in a nation where the World Bank estimates one out of four people live on less than $1.25 a day.
Homes, Loans
Lower borrowing costs have supported demand for Ayala Land Inc. homes and Bank of the Philippine Islands loans. Bank of the Philippine Islands may lend as much as 300 billion pesos over the next five years to boost profit, President Aurelio Montinola said this week.
While Indonesia has also kept its benchmark rate unchanged this year, other Asian policy makers including Malaysia and India have raised borrowing costs to curb inflation and contain asset bubbles. Thailand’s central bank yesterday increased interest rates a second straight month.
“I don’t think we’d be seeing an interest-rate increase this year,” said Paul Joseph Garcia, who helps manage $1.7 billion as chief investment officer at ING Investment Management Ltd.’s Manila unit. “Overnight borrowing rates are high while inflation is benign and there’s possibility that it would go down below 3.5 percent because commodity prices are low and food prices aren’t going haywire.”
To contact the reporter on this story: Karl Lester M. Yap in Manila at kyap5@bloomberg.net
Rate this Page