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Philippines May Cut Rate as Currency Gains Threaten Exports

Bangko Sentral ng Pilipinas Governor Amando Tetangco
Amando Tetangco, governor of Bangko Sentral ng Pilipinas. Photographer: Julian Abram Wainwright/Bloomberg

The Philippines will probably cut interest rates for a fourth time this year, joining nations from South Korea to Thailand in easing monetary policy to protect growth as the peso’s gains threaten exports.

Bangko Sentral ng Pilipinas will reduce the rate it pays lenders for overnight deposits by a quarter of a percentage point to 3.5 percent, according to 14 of 21 economists surveyed by Bloomberg News ahead of a decision tomorrow. The rest expect the benchmark to be left unchanged at 3.75 percent.

The currency has strengthened about 6 percent this year, undermining the nation’s export competitiveness. Overseas shipments unexpectedly fell in August and Bangko Sentral Governor Amando Tetangco said this month capital inflows pose a short-term challenge for policy makers in emerging markets as U.S. monetary easing raises the supply of dollars worldwide.

“Weakening exports, decelerating inflation and the rapid appreciation of the peso should compel BSP to cut by another 25 basis points in their upcoming meeting,” said Emilio Neri, an economist at Bank of the Philippine Islands in Manila, who previously worked at the Asian Development Bank.

Inflation unexpectedly slowed in September, with consumer prices rising 3.6 percent from a year earlier after gaining 3.8 percent the previous month. The central bank has room to ease as price gains remain contained, Tetangco said earlier this month.

Benchmark seven-year bonds have gained this month on optimism the central bank will cut rates further. Yields on the notes fell to 4.575 percent yesterday from 4.635 percent on Sept. 28, according to the Philippine Exchange & Dealing System.

Stemming Appreciation

The peso climbed to a four-year high last week, and is among the best performers this year of 11 Asian currencies tracked by Bloomberg. It slipped 0.1 percent as of 4:02 p.m. in Manila today. The Philippine benchmark stock exchange surged to a record this month and fell 0.6 percent at the close today.

Asian policy makers have acted to restrain their currencies. The Hong Kong Monetary Authority sold the local dollar for a second day in a week yesterday to stem appreciation after it touched the upper limit of a 29-year-old peg to the U.S. dollar.

Philippines had a budget deficit of 34.85 billion pesos in September, with the nine-month shortfall widening to 106.06 billion pesos, according to government data today. Revenue last month rose 0.9 percent while spending climbed 14.1 percent.

The nation will push for fiscal policy reforms and bills to raise revenue, Finance Secretary Cesar Purisima said today.

Record Spending

President Benigno Aquino is increasing spending to a record and seeking more than $16 billion of investments in roads and airports to spur economic growth to as much as 7 percent in 2013. Gross domestic product increased 5.9 percent in the three months through June from a year earlier.

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 ($7.6 billion) in 2010. A deal with Muslim rebels earlier this month to end a four-decade insurgency in the mineral-rich south is expected to draw more investors, after pledges this year from Glencore International Plc, the world’s biggest publicly traded commodities supplier and alternative fuel company Gazasia Ltd.

Asian economies have loosened monetary and fiscal policies this year as Europe’s debt crisis curbs the region’s expansion. Thailand and South Korea cut interest rates this month after the International Monetary Fund reduced its global growth forecasts and warned of “alarmingly high” risks of a deeper slowdown.

“In addition to the weak global outlook which has depressed exports, the central bank is also concerned about rapid capital inflows which have put upward pressure on the peso,” said Gareth Leather, a London-based economist at Capital Economics Ltd.

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