Philippines Holds Key Rates as Asia Gauges Need for Stimulus

  • Central bank cut inflation forecast for 2016, kept 2017 view
  • No need for monetary support yet as Tetangco touts flexibility

The Philippines left its benchmark interest rate unchanged as quickening economic growth gave policy makers room to save firepower should global risks worsen or threats from El Nino, market volatility and oil escalate.

Bangko Sentral ng Pilipinas kept the rate it pays lenders for overnight deposits at 4 percent for an 11th straight meeting, as predicted by all 14 economists surveyed by Bloomberg. Policy makers also held the rate on so-called special deposit accounts at 2.5 percent, as forecast by all seven analysts surveyed.

“Domestic conditions remain sufficiently liquid and aggregate demand is fairly robust, hence no need to provide further support to the domestic economy right now,” Governor Amando Tetangco told reporters in Manila. “That said, we retain policy flexibility as there are risks from El Nino in the medium term and from commodity and financial market volatility in the near term.”

The Philippine economy is forecast to expand 6 percent this year, among the fastest in the world, with the May presidential election seen boosting consumption. While Indonesia and Japan last month eased monetary policy, Thailand’s central bank is keeping its powder dry while pledging to act in the event of external shocks, its governor said this week.

Inflation Forecast

“While there’s some uncertainty in the May presidential elections, they are a catalyst to an improvement in the growth outlook,” Euben Paracuelles, an economist at Nomura Holdings Inc. in Singapore, said by phone. “It reinforces the case of monetary authorities staying the course.”

The peso closed little changed at 47.45 a dollar and stocks ended 0.4 percent higher before the policy decision. The peso has declined 0.8 percent this year, the worst performer among the most-actively traded Southeast Asia currencies, while the main equities index has lost 4 percent.

The central bank cut its inflation forecast this year to 2.2 percent from 2.4 percent estimated in December, while maintaining next year’s outlook at 3.2 percent, Deputy Governor Diwa Guinigundo said at the briefing. Consumer prices rose 1.3 percent in January from a year earlier.

Inflation risks have shifted slightly to the downside while the impact of a prolonged El Nino and volatility in commodity prices and financial markets “require a careful balancing of policy levers to minimize any unintended consequences of actions,” Tetangco said.

While the slump in oil prices could forestall growth in overseas remittances as demand for Filipino workers in the Middle East falters, Bangko Sentral is sticking to its forecast of about 4 percent growth in cash transfers this year, Guinigundo said. Jobs of as many as 1.5 million Philippine nationals working in the Middle East are at risk, Labor Secretary Rosalinda Baldoz said on Monday.

Guinigundo said the central bank may shift to a multiple rates regime as early as April, a move that should make monetary policy transmission more effective.

“When BSP implements the interest-rate corridor in April, that would probably be accompanied by a hike in the policy rate by 25 basis points to 4.25 percent,” Paracuelles said.

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