The Philippines refrained from cutting its benchmark interest rate, and instead cut the rate on special deposit accounts for a second time this year as it steps up efforts to curb inflows and restrain currency gains.
Bangko Sentral ng Pilipinas kept the rate it pays lenders for overnight deposits at a record-low 3.5 percent, according to a statement in Manila today. The decision was predicted by all 16 economists surveyed by Bloomberg News. Policy makers cut the rate on all SDAs to 2.5 percent effective immediately.
Governor Amando Tetangco, who has imposed limits on lenders’ currency forward positions and expanded monitoring of real estate loans to curb inflows, said this week the central bank is moving to an interest-rate corridor approach as the peso’s gains hurt exporters and erodes the value of remittances. Capital volatility poses a risk for Asia-Pacific economies, Standard & Poor’s said last week, raising the potential for asset and credit bubbles 15 years after the 1997-98 financial crisis.
“The BSP is moving to ensure currency gains are not excessive and prevent potential bubbles in the asset market,” Emilio Neri, an economist at Bank of the Philippine Islands in Manila, said before the decision. “While we don’t see any changes in the benchmark rate for the rest of the year, the BSP will probably continue unveiling macro prudential measures.”
The peso has strengthened more than 5 percent against the dollar in the past 12 months, the best performer among 25 emerging-market currencies tracked by Bloomberg. The benchmark Philippine Stock Exchange Index has risen 15 percent this year, the biggest gain among major emerging nations in Asia.
The $225 billion economy grew 6.8 percent last quarter from a year earlier, beating expansions in Indonesia, Malaysia and India. Net portfolio inflows were almost six times higher in January compared to December, spurred by funds including Manulife Asset Management and Western Asset Management Co.
Policy makers in the Asia-Pacific region have warned about the danger of rising currencies. New Zealand Governor Graeme Wheeler held borrowing costs today and said they may reduce the benchmark if the local dollar rises more than the economy justifies. South Korea also held its policy rate today.
Philippine President Benigno Aquino is increasing spending to a record this year while seeking more than $17 billion of investments in highways and airports to spur growth to as much as 7 percent. Standard & Poor’s in December raised the nation’s sovereign rating outlook to positive on improved governance and public finances, bringing it closer to investment-grade status.
Philippine exports unexpectedly fell in January, its first decline in five months. Shipments abroad accounted for about 30 percent of the economy in 2012. Remittances, which gained 6.3 percent in 2012, comprise about 10 percent of the economy.
Inflation accelerated to a five-month high in February, with consumer prices rising 3.4 percent from a year earlier. The central bank targets price gains to average 3 percent to 5 percent this year and next.
Max Estayo in Manila at email@example.com
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