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Philippine Peso Gain Capping Inflation Boosts Rate-Cut Odds

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Bangko Sentral ng Pilipinas Governor Amando Tetangco
Amando Tetangco, governor of Bangko Sentral ng Pilipinas, will reduce the rate it pays lenders for overnight deposits by a quarter of a percentage point to 4 percent, according to 14 of 18 economists surveyed by Bloomberg News. Photographer: Veejay Villafranca/Bloomberg

Feb. 29 (Bloomberg) -- A strengthening Philippine peso that’s helping contain inflation in the Southeast Asian nation has boosted scope for the central bank to cut interest rates for a second straight meeting this week.

Bangko Sentral ng Pilipinas will reduce the rate it pays lenders for overnight deposits by a quarter of a percentage point to 4 percent, according to 14 of 18 economists surveyed by Bloomberg News ahead of a decision tomorrow. Three expect the benchmark to be left unchanged at 4.25 percent while one predicts a half-point cut to 3.75 percent.

“Domestic inflationary pressures are easing,” said Betty Wang, a Hong Kong-based analyst at Standard Chartered Plc. “To some extent, the rising peso helps cap import prices and lower domestic price levels. That gives the BSP leeway to cut rates to boost domestic growth.”

Consumer-price gains slowed to a 13-month low in January, and the governor said this week declining utility costs and a rising currency have led to further easing. The Philippines joined neighbors from Thailand to Indonesia in cutting borrowing costs this year to protect their economies as Europe’s debt crisis saps demand for the region’s goods.

Yields on 6.375 percent bonds due January 2022 dropped to a record-low this month, as investors bet the central bank will cut its benchmark rate. The yield slid to 4.87 percent on Feb. 17, the lowest level since the debt was first sold in July 2011.

Bangko Sentral has “room for further calibrated accommodation” in its benchmark rates as “domestic inflation remains manageable,” Governor Amando Tetangco said in an e-mail late yesterday in reply to questions.

Boosting Spending

The Philippine peso surged to a six-month high in February, and is the third-best performer among 11 Asian currencies tracked by Bloomberg in the past 12 months. The benchmark Philippine Stock Exchange Index climbed to a record this month.

President Benigno Aquino is increasing spending this year to a record 1.83 trillion pesos ($43 billion) to help bolster growth to as much as 8 percent annually. The government is also accelerating a plan to offer to investors $16 billion of infrastructure projects from mass rails to airports.

Inflation probably slowed to 2.7 percent to 3.6 percent in February on peso gains and lower utility rates, Tetangco said yesterday, adding that price gains should “continue to be manageable, barring oil-supply surprises due to any acceleration in the tensions in the Middle East.” Consumer prices rose 3.9 percent in January.

Companies including Manila Electric Co., Maynilad Water Services Inc. and Union Bank of the Philippines are predicting higher profits this year as economic growth boosts demand for electricity, water and loans. The government has forecast the $200 billion economy will expand by 5 percent to 6 percent this year from 3.7 percent in 2011.

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

To contact the editor responsible for this story: Stephanie Phang in Singapore at

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