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Philippines Holds Rate at Record Low on Inflation Pressure

The Philippines held interest rates at a record low for a 10th straight meeting to boost growth, even as it said inflation risk remains elevated.

Bangko Sentral ng Pilipinas kept the rate it pays lenders for overnight deposits at 3.5 percent, according to a statement in Manila today, as forecast by 16 of 17 economists surveyed by Bloomberg News. One predicted an increase of a quarter of a percentage point.

A report yesterday showed Philippine inflation quickened to a two-year high in January, and Deputy Governor Diwa Guinigundo said today the scope to hold borrowing costs is narrower. The peso slumped to its lowest level in more than three years this week as a reduction in U.S. monetary stimulus pummeled stocks and currencies in emerging markets.

“The BSP is going to step in because of higher inflation expectations rather than the actual inflation numbers,” said Marc Bautista, head of research at Metropolitan Bank & Trust Co. in Manila. “The central bank might start to counter successive months of inflation that’s more than 4 percent with hikes starting in the second half.”

The peso rose 0.3 percent to 45.182 per dollar before the announcement. It has weakened almost 2 percent this year, the worst performer after the Korean won among 11 Asian currencies tracked by Bloomberg. The benchmark stock index rose 0.1 percent at the close today before the rate decision.

Faster Growth

The Philippines is watching the currency’s impact on inflation, Guinigundo said. The central bank cut its full-year forecast for price gains to 4.3 percent from 4.5 percent and raised its 2015 estimate to 3.3 percent.

Domestic economic activity will stay firm, and the central bank will consider policy adjustments when needed, Governor Amando Tetangco said. Buoyant demand, strong fiscal and external positions and favorable consumer and business sentiment will support the economy, he said.

Consumer prices rose 4.2 percent from a year earlier last month, the fastest pace since Dec. 2011.

The Philippines will probably end three quarters of slowing growth in the current period as rebuilding after Typhoon Haiyan picks up, Economic Planning Secretary Arsenio Balisacan said in an interview this week. Expansion (PHGDPYOY) in the three months through March may be faster than the 6.5 percent pace recorded in the October-December period, he said.

President Benigno Aquino is increasing spending on infrastructure to a record this year to lure investments and boost expansion to as much as 7.5 percent. San Miguel Corp., Ayala Corp. (AC) and Megawide Construction Corp. are among companies building schools, power plants and roads in the country.

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 at sphang@bloomberg.net

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