Philippines Cuts Key Rate for First Time Since 2009 as Growth Outlook Dims
The Philippines cut interest rates for the first time since July 2009, joining emerging markets from Thailand to Indonesia in easing monetary policy as a deteriorating global economy threatens growth.
Bangko Sentral ng Pilipinas lowered the rate it pays lenders for overnight deposits by a quarter of a percentage point to 4.25 percent, according to a statement in Manila today. The decision was predicted by 13 of 17 economists in a Bloomberg News survey, with the rest expecting no change. The central bank maintained the reserve requirement ratio at 21 percent.
“The Philippine economy is likely to face external headwinds in 2012,” Governor Amando Tetangco said in the statement. “The benign inflation outlook allowed some scope for a reduction in policy rates to help boost economic activity and support market confidence.”
Asian policy makers are under mounting pressure to protect growth after the World Bank cut its global economic forecast this week, saying a recession in the euro region could exacerbate a slowdown in countries such as India and China. Lower borrowing costs and slowing price gains may aid Philippine President Benigno Aquino’s efforts to boost expansion as he increases spending and seeks investment for roads and airports.
“The inflation environment gives the central bank flexibility to take more insurance for growth,” said Prakriti Sofat, a Singapore-based regional economist at Barclays Capital. “We expect one more rate cut in the second quarter.”
Stocks Climb
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. It closed up 0.5 percent before the decision today.
The peso fell to 43.495 per dollar today after climbing 0.5 percent to its highest level since Dec. 8 yesterday, according to Tullett Prebon Plc.
The World Bank cut its global growth forecast by the most in three years this week, predicting the world economy will grow 2.5 percent this year, down from a June estimate of 3.6 percent.
Growth in Asian economies is faltering as Europe’s debt woes hurt the region’s exports. China reported this week 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.
Global Easing
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. Brazil and Chile lowered borrowing costs this month.
Philippine 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. Average annual inflation will probably fall within the lower half of the central bank’s 3 percent-to-5 percent target up to 2013, Tetangco said today.
The central bank forecasts an inflation rate of 3.1 percent for 2012 and 3.4 percent for 2013, Deputy Governor Diwa Guinigundo said. While it is difficult to rule out price pressures, the inflation outlook is very favorable, inflation expectations are broadly anchored and the probability of upside price risks is low, he told reporters in Manila.
Bangko Sentral will consider the fourth-quarter growth rate in its next policy meeting in March and may consider cutting rates further should growth deteriorate, Guinigundo said.
Record Spending
President Aquino is increasing spending this year to a record 1.83 trillion pesos ($42 billion) to help bolster 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; Max Estayo in Manila at mestayo@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang in Singapore at sphang@bloomberg.net
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