Philippine Growth Seen Quickening Narrows Scope to Hold Rate

The Philippines will probably end three quarters of slowing growth, with central bank Governor Amando Tetangco seeing less room to hold interest rates after inflation accelerated to a two-year high.

Reconstruction after Typhoon Haiyan, and stronger exports and tourism will help boost growth this quarter to above the 6.5 percent pace recorded in the previous three-month period, Economic Planning Secretary Arsenio Balisacan said yesterday. Inflation last month quickened to the fastest pace since Dec. 2011, a report showed today.

“We still have room to keep rates steady, but given how these factors play out, that room may be narrowing,” Tetangco said today after the inflation report. The central bank will probably hold its benchmark for a 10th meeting tomorrow, according to a Bloomberg survey.

Policy makers in emerging nations from Turkey to Brazil have raised interest rates this year to contain inflation and bolster weakening currencies as the U.S. cuts monetary stimulus. Philippine President Benigno Aquino is increasing spending on infrastructure to a record this year to lure investments and boost expansion to as much as 7.5 percent.

The peso fell 0.1 percent to 45.37 per dollar as of 11:44 a.m. in Manila, according to Tullett Prebon Plc. The currency yesterday touched its lowest level in more than three years.

“The fundamentals are pretty strong and the private sector remains quite bullish on the economy and profitability of firms,” Balisacan said. The recent weakness in the peso is “not a problem at all, and even better for employment and the economy” as it bolsters export industries, he said.

Policy Stance

Bangko Sentral ng Pilipinas will hold its overnight borrowing rate at a record-low 3.5 percent tomorrow, according to 16 of 17 economists in a Bloomberg survey, with one analyst predicting a 25-basis point increase.

“We will see if any adjustments to the stance of policy are warranted based on the balance of these risks to the inflation outlook over our policy horizon,” Tetangco said. Consumer prices rose 4.2 percent in January from a year earlier.

If inflation continues to quicken in the first quarter, the BSP may be “more pre-emptive in its policy stance and tightening could be brought forward to the second quarter,” Australia and New Zealand Banking Group Ltd. analysts Eugenia Fabon Victorino and Glenn Maguire said in a note today.

The government is confident of meeting this year’s growth goal, Balisacan said, even as emerging markets battle capital flight, with Philippine stocks yesterday experiencing the longest streak of net foreign outflows in five months.

‘Quite’ Strong

“Investors who are in here, especially those who are in direct investments, have much confidence in the economy in the medium- to long-term,” Balisacan said. “The outflows may be coming from those fly-by-night portfolio investments. But these are not likely to be large and may just be temporary.”

The Philippines is poised to remain among the five fastest-growing economies globally this year, according to Bloomberg surveys. Gross domestic product rose 7.2 percent in 2013 after gaining 6.8 percent in 2012, the fastest two-year pace since 1954-1955, data compiled by Bloomberg show.

“The Philippines is looking quite strong relative to others in the region,” said Gundy Cahyadi, an economist at DBS Group Holdings Ltd. in Singapore. The impact of the typhoon on the economy will not be significant, and growth will remain “among the fastest in the region and in the world,” he said.

The government is preparing a bill to ease foreign ownership limits in areas such as utilities, airports and roads to boost overseas investment, Balisacan said. The Philippines draws the least foreign direct investment among major Southeast Asian nations, with just $2.8 billion in 2012 compared with $19.6 billion for Indonesia, according to World Bank data.

The Aquino administration plans to create as many as 2.34 million jobs through 2016 to reduce the unemployment rate to 6.5 percent to 6.7 percent, and cut the poverty ratio to 18 percent to 20 percent, Balisacan said. More than 25 percent of the nation’s population lived below the poverty line in 2012, according to official data.

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