Philippines Holds Key Interest Rate as Growth Exceeds 7%

The Philippines held its benchmark interest rate at a record low for an eighth meeting to support Southeast Asia’s fastest-growing economy as inflation stays within the central bank’s targeted range.

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. Policy makers also kept the rate on special deposit accounts at 2 percent, as predicted by all nine analysts in a separate survey.

Prospects for the economy remain “robust,” and risks to the inflation outlook are unchanged, Governor Amando Tetangco said today. Philippine expansion in 2013 may exceed the government’s 6 percent to 7 percent target, and the central bank will probably hold rates until next year, Tetangco said earlier this month, even as the International Monetary Fund cut its global growth forecast.

“They will keep policy settings for as long as they see inflation remain within their target, even though growth is strong,” said Euben Paracuelles, a Singapore-based economist at Nomura Holdings Inc. “They can keep the policy and SDA rates unchanged for at least the remainder of the year and even up to the first quarter of 2014.”

The benchmark Philippine Stock Exchange Index fell 0.8 percent at the close before the decision. The peso gained 0.1 percent to 43.095 per dollar, and is the fourth-worst performer this year among 11 Asian currencies tracked by Bloomberg.

Inflation Target

Strong liquidity growth is temporary and won’t fan inflationary pressures, the central bank said last month, after reporting money supply increased 30.9 percent in August from a year earlier. While inflation quickened to a three-month high in September, the pace of gains was still below the central bank’s target rate of 3 percent to 5 percent in 2013 and 2014.

The central bank today kept its average inflation forecast for 2013 at 3 percent and raised its prediction for 2014 to 4 percent from 3.9 percent. It cut its price-gains estimate for 2015 to 3.4 percent from 3.5 percent, Deputy Governor Diwa Guinigundo said in a briefing today.

The monetary authority has the space to handle any reversals, and can adjust policy and SDA rates if needed, Tetangco said. Lending is going to “productive sectors” and the BSP will keep monitoring price and output conditions, he said.

The Philippine central bank can review reserve requirements for lenders should peso and dollar liquidity begin to tighten, Guinigundo said today. The nation’s reserves are at a comfortable level, with the current account and balance of payments in surplus, and there is sufficient domestic support to address any adverse implications of U.S. tapering, he said.

Record Spending

The Philippine monetary authority is in talks with central banks in the region on currency-swap arrangements, Guinigundo said, without providing more details. The economy doesn’t need additional stimulus, with indicators pointing to “resilient, robust” GDP growth, he said.

The Philippines this year won investment-grade scores from Moody’s Investors Service, Fitch Ratings and Standard and Poor’s, as President Benigno Aquino leads a growth resurgence that’s outpacing the rest of Southeast Asia. The nation is poised to be among the world’s five fastest-growing economies in 2013 and 2014, according to Bloomberg surveys.

Aquino is increasing spending to a record while seeking more than $17 billion of investments in highways and airports to improve infrastructure, with Fujifilm Holdings Corp. and Sonion A/S among companies that opened new factories this year. Gross domestic product rose 7.5 percent in the second quarter from a year earlier, matching China’s pace.

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