Philippines May Cut Rate as Pressure Grows to Join Easing

The Philippines may cut interest rates for the first time since July 2009, joining nations from Australia to Thailand in easing monetary policy as Europe’s debt crisis curbs economic growth.

Bangko Sentral ng Pilipinas will reduce the rate it pays lenders for overnight deposits by a quarter of a percentage point to 4.25 percent, according to 13 of 17 economists surveyed by Bloomberg News ahead of a decision tomorrow. The rest expect the benchmark to be left unchanged at 4.5 percent.

Lower borrowing costs may aid President Benigno Aquino’s efforts to boost growth as he increases spending and seeks investment for roads and airports. The Philippine Stock Exchange Index (PCOMP) rose to a record this month and became the best performer among 19 Asian share indexes tracked by Bloomberg in the past six months as investors bet policy makers will take steps to stimulate growth and counter faltering global demand.

“Conditions are right for the cut,” said Trinh Nguyen, a Hong Kong-based economist at HSBC Holdings Plc. “Across Asia, inflation is on the downward trend. Growth concerns are enough to motivate the BSP to give a lending hand.”

The World Bank cut its global growth forecast by the most in three years this week, saying that a recession in the euro region threatens to exacerbate a slowdown in emerging markets such as India and Mexico. The world economy will grow 2.5 percent this year, down from a June estimate of 3.6 percent, the Washington-based institution predicts.

Bonds Gain

Benchmark Philippine bonds due January 2022 gained today, ending two days of losses, according to Tradition Financial Services. The yield dropped two basis points, or 0.02 percentage point.

Growth in Asian economies is faltering as Europe’s debt woes hurt the region’s exports. China yesterday reported its weakest expansion in 10 quarters. The Philippines’ $200 billion economy expanded 3.2 percent in the third quarter from a year earlier, holding near the 3.1 percent pace in the previous three months that was the slowest since 2009.

Bangko Sentral may adjust its monetary policy within the quarter to help encourage investments and the central bank has a “policy toolkit” to respond to risks, Governor Amando Tetangco said today. While oil costs pose upside risks to inflation, price gains will probably stay within the 3 percent to 5 percent target this year and next, and may stay closer to the low-end of the goal in 2012, he said.

Room to Ease

The governor said last week he anticipates easing monetary policy this quarter should Europe’s sovereign-debt crisis further damp the growth outlook.

“Given benign inflation conditions and a favorable inflation outlook, we have room to support domestic activity should the global economy deteriorate significantly,” Tetangco said Jan. 9. Policy makers may cut the benchmark rate or reduce banks’ reserve ratio as the central bank forecasts inflation this year and next will average closer to the low-end of a 3 percent to 5 percent target, he said.

Inflation slowed to an 11-month low in December, with consumer prices rising 4.2 percent from a year earlier. Exports (PHEXYOY) fell for a seventh month in November.

The Philippine central bank kept its benchmark policy rate unchanged for a fifth meeting in December after two increases earlier in 2011. It also raised the reserve requirement twice last year, bringing the ratio to 21 percent.

‘Blunt Tool’

Tetangco said today the Philippines’ monetary policy is “accommodative” and the reserve requirement ratio is a “blunt tool.”

Bank Indonesia, which kept its benchmark rate unchanged last week for a second month after reductions in October and November, widened the lower range of its interbank lending rate this week in a de facto easing of monetary policy.

The central bank in Southeast Asia’s largest economy said yesterday it would extend the bottom end of its deposit facility to 200 basis points below its benchmark interest rate from 150 basis points. The move is a form of easing by pushing interbank borrowing costs lower, Wee-Khoon Chong, a Hong Kong-based fixed-income strategist at Societe Generale SA, wrote in a note.

Aquino is increasing spending this year to a record 1.83 trillion pesos ($42 billion) to help bolster Philippine growth to as much as 8 percent annually. The government also plans to offer as many as 16 projects to investors this year, compared with one contract awarded in 2011.

Ayala Corp., leading a consortium that won a contract last month to build a four-kilometer, four-lane paved toll road leading to provinces south of the capital, may bid for two road projects and a contract to run an airport, Managing Director Eric Francia said Dec. 15.

Aquino has won sovereign-rating upgrades from Fitch Ratings and Moody’s Investors Service after intensifying efforts to narrow the budget gap from a record 314 billion pesos in 2010. Standard & Poor’s raised its outlook on the country’s debt rating last month.

To contact the reporters on this story: Karl Lester M. Yap in Manila at kyap5@bloomberg.net; Michael J. Munoz in Hong Kong at mjmunoz@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang in Singapore at sphang@bloomberg.net

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