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Philippine Record-Low Rates Aren’t ‘Sacred,’ Guinigundo Says

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Philippines’ Deputy Governor Diwa Guinigundo
Diwa Guinigundo, deputy governor of Bangko Sentral ng Pilipinas, the Philippine central bank, is seen in this 2010 file photo. Photographer: Edwin Tuyay/Bloomberg

April 14 (Bloomberg) -- The Philippines’ record-low benchmark interest rate isn’t sacred and will need to be reviewed as the central bank guards against price pressures, Deputy Governor Diwa Guinigundo said. The peso fell.

“Current interest rate levels are not sacred, I should stress that,” Guinigundo, 59, said in an April 12 interview in Baguio city, north of Manila. “They remain to be appropriate, but if they will produce unintended consequences in the future, then we will have to review those policy rates.”

Bangko Sentral ng Pilipinas ordered lenders to set aside more money as reserves from April 4, a move that may herald an increase in the benchmark interest rate which has been held at 3.5 percent since October 2012. While inflationary pressures appear to have eased, “upside risks” persist, including increases in power and utility costs, ample liquidity and uncertainty posed by the U.S. Federal Reserve’s stimulus tapering, Guinigundo said.

“The central bank should remain proactive in tightening, but do so on a gradual basis so as not to affect growth prospects,” said Jeff Ng, a Singapore-based economist at Standard Chartered Plc, who predicts an increase in the overnight deposit rate in the third quarter. “We expect inflation to be on an uptrend in the second quarter, narrowing the scope to keep rates steady.”

The Philippine peso fell 0.3 percent to 44.410 against the U.S. dollar as of 9:42 a.m., poised for its biggest decline in more than a week, according to data compiled by Bloomberg. The benchmark stock index slipped 0.2 percent.

Capital Outflows

The Philippine economy can absorb or accommodate higher interest rates and macroprudential measures that the central bank may implement if and when it believes necessary, Guinigundo said at a conference in Baguio the same day.

“We should be more forward looking, more preemptive because monetary policy works with a lag and the lag could be long,” Guinigundo said in the interview, declining to provide a timetable for an increase in borrowing costs. The possibility of higher interest rates in the U.S. and other advanced economies may lead to capital outflows and cause the peso to weaken, he said.

The peso completed its biggest jump in almost seven months last week, rising 1.5 percent, on speculation the currency will catch up with gains in other emerging-market exchange rates. The peso weakened about 9 percent against the U.S. dollar in 12 months through March 31, among the worst in a basket of 11 Asian currencies tracked by Bloomberg.

Asset Bubbles

Risks of inflation remain even after price gains eased in February and March, central bank Governor Amando Tetangco said April 9. The monetary authority isn’t “wedded to any particular policy action” and has a number of tools that can be deployed as needed, Tetangco said in an interview last month. The next policy meeting is scheduled for May 8.

Consumer prices rose 3.9 percent in March from a year earlier, easing from 4.1 percent in February. The central bank targets inflation to average 3 percent to 5 percent this year.

President Benigno Aquino said in a February interview there is no danger of the economy overheating, downplaying the risk of asset bubbles forming even as he targets annual growth of as much as 7.5 percent this year.

Money supply rose more than 30 percent every month in the eight months through February. It may stabilize by the second half of the year at 15 percent to 17 percent, Guinigundo said last month. The central bank said on March 27 it would raise the reserve requirement ratio for universal and commercial banks to 19 percent from 18 percent effective April 4.

Gross domestic product rose 7.2 percent in 2013 and 6.8 percent in 2012. The International Monetary Fund this month cut its forecast for global growth in 2014 and urged emerging markets to prepare for flows of capital back to advanced economies.

To contact the reporter on this story: Karl Lester M. Yap in Manila at

To contact the editors responsible for this story: Stephanie Phang at Nerys Avery, Rina Chandran

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