Philippines Holds Rate as BSP Awaits New Duterte Initiatives

  • All 17 economists surveyed by Bloomberg predicted no change
  • Bank last lowered rates in May as part of policy revamp

The Philippines left its benchmark interest rate unchanged, signaling the central bank will await upcoming initiatives by new President Rodrigo Duterte before changing policy.

Bangko Sentral ng Pilipinas said Thursday it’s keeping the overnight borrowing rate at 3 percent, as predicted by all 17 economists surveyed by Bloomberg. The bank last lowered the rate in May and narrowed the band around it to make monetary policy more effective.

Overall inflation risks are broadly balanced, Governor Amando Tetangco said at a briefing. He however warned that “increased uncertainty over prospects for growth and monetary policy action in major advanced economies” calls for prudence when it comes to the Philippines’ own policy.

Inflation in the Southeast Asian nation has edged higher in recent months, moving to 1.9 percent in July, more than one percentage point higher than a year earlier. Meanwhile, the economy grew an annual 6.9 percent -- faster than China -- in the first quarter. Duterte’s administration has forecast growth of 6 percent to 7 percent this year.

Inflation Outlook

“The economy is booming,” Tim Condon, a Singapore-based economist with ING Group, said by e-mail. “We’re forecasting inflation accelerating to the top half of the BSP target range next year.”

That means price pressures closer to 4 percent, which, according to Condon, could push the BSP to raise rates in the first quarter of 2017, Condon said.

The central bank on Thursday lowered its average inflation forecast for 2016 to 1.8 percent from 2 percent, and to 2.9 from 3.1 percent for 2017, Deputy Governor Diwa Guinigundo said at the briefing. The revised predictions however don’t consider possible steps that may stoke prices, including higher utility rates and fuel taxes, he said.

"Despite the benign forecast for inflation, JPMorgan expects no change in monetary policy setting this year as the central bank implements its interest rate corridor mechanism amid a narrowing external balance," Sin Beng Ong, JPMorgan Chase & Co.’s chief economist for Southeast Asia, wrote in a note.

‘Even Better’

In his first state of the nation address, Duterte late last month promised to keep the economic policies of his predecessor “and even do better,” outlining initiatives he said would boost growth and create jobs to lift people out of poverty.

The former mayor, who took office June 30, has vowed to relax economic restrictions and make it easier to do business, in a bid to attract more foreign investment. Duterte, 71, is also pledging to lower personal and corporate income taxes, accelerate infrastructure spending and ease rules protecting the secrecy of bank deposits.

For an explainer on the Philippines under the new president, click here

Before it's here, it's on the Bloomberg Terminal. LEARN MORE