Philippines Holds Rates at Record Low to Support GDP GrowthKarl Lester M. Yap and Max Estayo
The Philippines held its benchmark rate at a record low as easing inflation gave policy makers room to support Southeast Asia’s fastest-growing major economy.
Bangko Sentral ng Pilipinas kept the interest rate it pays lenders for overnight deposits at 3.5 percent for a seventh meeting, according to a statement in Manila today, as forecast by all 19 economists surveyed by Bloomberg News. It also held the rate on special deposit accounts at 2 percent.
Philippine expansion has exceeded 7 percent for four straight quarters as government spending rose, underscoring the nation’s resilience as policy makers in Thailand, Malaysia and Indonesia have cut their growth estimates. Inflation eased to a four-year low in August and the central bank targets consumer-price gains to average 3 percent to 5 percent this year and next.
“Monetary authorities were justified to keep rates steady and ensure that second-half growth numbers won’t slow significantly,” said Emilio Neri, an economist at Bank of the Philippine Islands in Manila. “They have adequate space to keep the policy stance through a good part of 2014 with inflation forecasts on the dot.”
The benchmark stock index slipped 0.3 percent at the close before the decision today, and the peso dropped 0.2 percent to 43.895 per dollar. The currency has fallen the least in Southeast Asia this quarter after the Singapore dollar.
Philippine gross domestic product rose 7.5 percent in the second quarter from a year earlier, matching China’s pace. The nation is poised to be among the world’s five fastest-growing economies in 2013 and 2014, according to Bloomberg surveys.
The central bank today lowered its inflation forecast for 2013 to 3 percent from 3.3 percent and its 2014 estimate to 3.9 percent from 4 percent. It kept the 2015 estimate at 3.5 percent.
The decision to hold borrowing costs is based on its assessment of a “benign inflation environment,” the monetary authority said in the statement, adding that the balance of risks to its price-gains outlook has “shifted slightly toward the upside” on volatile oil prices.
The economy can sustain expansion at above 6 percent until 2015 without generating inflation pressures as the government boosts infrastructure spending and domestic investment picks up, Deputy Governor Diwa Guinigundo told reporters. The build-up of asset bubbles is not a concern at this point, he said, and reiterated that a surge in July’s money-supply growth to the fastest pace since at least 2004 is temporary, not inflationary.
“Domestic economic activity has been growing at a solid pace, supported by firm demand and buoyant business sentiment,” the central bank said in the statement. “Steady policy settings will also allow policy makers to better assess evolving economic risks, given current volatilities in global financial markets.”
Philippine President Benigno Aquino is increasing spending to a record this year while seeking more than $17 billion of investments in highways and airports to improve infrastructure. Fujifilm Corp. and Sonion A/S are among companies that began production at new factories in the nation this year.
Fitch Ratings and Standard and Poor’s this year awarded the Philippines its first investment-grade scores, while Moody’s Investors Service, which ranks the nation a step below, has said it is reviewing its rating for an upgrade.
Indonesia unexpectedly raised borrowing costs today for the fourth time since early June to support a weakening currency and cool inflation expectations. Earlier, New Zealand’s central bank signaled it may need to raise rates next year after keeping them unchanged today, and Bank of Korea also held its benchmark rate.