Philippines Holds Rate to Shield Growth as Global Risks RiseKarl Lester M. Yap and Max Estayo
The Philippines held its benchmark interest rate at a record low even as it said a weakening peso poses inflation risks, joining nations from South Korea to Thailand in shielding growth.
Bangko Sentral ng Pilipinas kept the rate it pays lenders for overnight deposits at 3.5 percent, according to a statement in Manila today, as forecast by all 18 economists surveyed by Bloomberg News. It also held the rate on special deposit accounts at 2 percent, as predicted by 11 of 12 economists.
President Benigno Aquino this week asked lawmakers to pass measures to boost business competitiveness and improve governance to sustain the nation’s expansion. Exports have slipped and a growth slowdown in China has dimmed the region’s outlook, while a weakening peso led the central bank to raise its inflation forecasts today.
“Among Asian countries, the Philippines has the most room to keep rates unchanged,” said Eugene Leow, an economist at DBS Group Holdings Ltd. in Singapore. “The BSP has the space to boost domestic demand to strengthen growth and counter any external weakness.”
The Philippine benchmark stock index closed 0.1 percent lower before the decision. The peso has depreciated more than 5 percent this year and is the worst performer after the yen and the Indian rupee among 11 Asian currencies tracked by Bloomberg.
“Global economic prospects are likely to stay subdued,” the central bank said in a statement today. “Financial-market volatility persists owing to the concerns over the timing of the tapering of monetary stimulus in advanced economies, and this suggests caution in assessing the policy stance.”
China’s economy slowed for a second straight quarter, and the International Monetary Fund this month cut its global growth forecasts, adding pressure on policy makers in the region to aid expansion while acting to stabilize financial markets.
Thailand held borrowing costs in July and India raised two rates to support its currency, while South Korea has pledged to increase state spending. Philippine Governor Amando Tetangco has cut the SDA rate thrice this year, banned access for mutual funds and individually managed accounts, and relaxed curbs on dollar purchases as the BSP shifts toward an interest-rate corridor approach.
Philippine inflation quickened to 2.8 percent in June from a year earlier, and the central bank today raised its price-gain forecast for this year to 3.3 percent from 3.1 percent and for next year to 4 percent from 3.6 percent.
“Upside risks to the inflation outlook remain, including pending utility-rate adjustments, as well as the recent depreciation of the peso,” the central bank said.
The Philippines won its first investment-grade rankings from Fitch Ratings and Standard & Poor’s earlier this year, and Moody’s Investors Service today said it has placed the nation’s ratings on review for an upgrade.
Aquino is increasing spending to a record in 2013 and seeking more than $17 billion of investments in highways and airports. Fujifilm Corp. and Sonion A/S began production at new factories this year.
Gross domestic product rose 7.8 percent in the first quarter from a year earlier, the fastest growth among 17 Asia-Pacific economies tracked by Bloomberg.