The Philippines is poised to get its first investment-grade credit rating this year and the central bank is prepared to unveil additional measures to deal with a possible surge in capital inflows, Governor Amando Tetangco said.
“We think we’ll achieve it this year and most probably in the first half,” Tetangco said about the rating in an interview on Bloomberg Television today. “We have allowed greater flexibility in the exchange rate, but we also reserve the right to participate in the foreign-exchange market to smoothen sharper movements. We stand ready to implement additional measures as may be appropriate.”
The Southeast Asian economy has the highest junk rating at Moody’s Investors Service, Fitch Ratings and Standard & Poor’s, and President Benigno Aquino said in a speech in Davos this week that the nation is “on the cusp” of gaining investment-grade status. S&P, which raised the outlook on the country’s debt to positive last month, said an upgrade is possible this year, citing improved governance and public finances.
Bangko Sentral ng Pilipinas yesterday reduced the rate it pays on almost 1.7 trillion pesos ($42 billion) in its special deposit accounts to 3 percent even as it held the benchmark overnight borrowing rate at a record-low 3.5 percent. The peso climbed to the strongest level in almost five years this month.
“In most emerging markets, there has been an increase in capital inflows and this has led to an appreciation of local currencies,” Tetangco said today. “What central banks have done is really to expand their toolkit so they’re no longer dependent on policy rates.”
The cut will lower the central bank’s costs, curb currency speculation and help spur lending, Credit Suisse Group AG said in a note yesterday. The peso fell 0.1 percent to 40.658 per dollar at the close in Manila, according to Tullett Prebon Plc. It rose to 40.55 on Jan. 14, the strongest since March 2008.
“We are striving to make the fluctuations not too abrupt,” Aquino said in an interview today in Davos, adding that the peso’s advance is hurting exporters. “We adhere to a doctrine of letting the markets decide the prices.”
Currency wars will “further complicate” the global economic recovery, Aquino said. “I don’t think any reasonable person would want to go into such a thing.”
The yield on benchmark three-year bonds fell 29 basis points to 3.47 percent, the lowest in a year, according to midday fixing prices at Philippine Dealing & Exchange Corp.
Bangko Sentral expects inflation to average 3 percent this year and 3.2 percent in 2014. The economy expanded 7.1 percent in the third quarter, the fastest in Southeast Asia. Data for the final three months of 2012 is due on Jan. 31.