Oct. 3 (Bloomberg) -- The Philippines will withstand pressure stemming from the impending reduction of the Federal Reserve’s stimulus with growth exceeding 7 percent this year, central bank Governor Amando Tetangco said.
Bangko Sentral ng Pilipinas will probably keep interest rates steady this year and next, “barring any unforeseen shocks,” Tetangco, 60, said in an interview in his office in Manila yesterday. Inflation will fall within the central bank’s target range for a fifth year this year, he said.
The Asian Development Bank yesterday raised its gross domestic product growth estimate for the Philippines this year to 7 percent, while cutting its prediction for developing Asia. Slowing growth in China and India is compounded by concern that the unwinding of the Fed stimulus will drive investors away from emerging nations and spur volatility in financial markets.
“What we have observed is that the impact on us has mainly been in terms of greater financial market volatility,” Tetangco said. “The economy hasn’t been affected much. Domestic demand is the real driver. We’re less dependent on the performance of other countries or the rest of the world, unlike our neighbors.”
The peso climbed 0.7 percent, the most in Southeast Asia today after the Malaysian ringgit. The Philippine Stock Exchange Index added 0.4 percent to 6,387.65 at the close in Manila, the highest since Sept. 26.
Inflation eased to a four-year low in August, with consumer prices rising 2.1 percent from a year earlier.
Policy makers have held the benchmark interest rate at a record-low 3.5 percent since cutting it a year ago. The central bank targets consumer price gains to average 3 percent to 5 percent in 2013 and 2014.
Philippine GDP rose 7.5 percent in the second quarter from a year earlier, matching China’s pace and higher than the government target of 6 percent to 7 percent for the year. President Benigno Aquino yesterday said the nation can achieve 7 percent economic growth this year.
“It’s likely the 7 percent upper end of the government target will be exceeded,” Tetangco said.
The government’s growth forecast for next year is 6.5 percent to 7.5 percent, said Tetangco, who began working at the central bank in 1974 as a statistician at the economic research department and rose to governor in 2005.
The Philippines is well-placed to withstand any volatility, with its current-account surplus and high foreign exchange reserves, the Asian Development Bank said yesterday. Authorities will need to keep a close eye on credit conditions, with a possibility that the central bank will tighten monetary policy next year, the ADB said.
The country will be able to “adjust smoothly” to an eventual tapering of bond purchases by the Fed, the International Monetary Fund said last month.
Central bank Deputy Governor Diwa Guinigundo said last month that the nation is prepared for a possible tapering of the Fed’s record stimulus with policy measures to deal with capital outflows. The measures may include boosting dollar and peso liquidity, careful surveillance of risk, use of forward guidance, tapping currency-swap agreements, and possible tightening of monetary policy, he said.
CIMB Group Holdings Bhd. Chief Executive Officer Nazir Razak said investors are starting to differentiate Asia’s emerging markets after the sell-down in the past two months on concerns of the Fed’s tapering.
“For the near-term, we’re probably going to see a little bit of upturn in the regional markets,” Nazir, whose bank led Southeast Asia’s stock and bond sales by volume this year, said in response to questions after a speech in Singapore yesterday. “But in the long-term, one needs to prepare for the eventuality of tapering.”
In the Philippines, Aquino is raising spending to a record this year and seeking more than $17 billion of investment in roads and airports. Fitch Ratings and Standard and Poor’s awarded the Philippines its first investment-grade scores earlier this year. Moody’s Investors Service upgraded its rating on the Philippines today, completing the country’s ascent to an investment rank.
“We have room to continue to support the economy given the benign inflation,” Tetangco said in the interview. “Thus we’ve been able to maintain interest rates at historically low levels without fanning inflation.”
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