Tetangco Signals Philippines May Shun Rates to Cap Liquidity

The Philippines’ benchmark interest rate may not be the best tool to curb surging money supply, central bank Governor Amando Tetangco said, signaling authorities may look to other measures to do the job.

“If liquidity growth continues to be strong even as the inflation outlook stays manageable, we will not hesitate to again consider further pre-emptive macroprudential measures,” Tetangco said April 26 at a conference of currency dealers in Cebu, south of Manila. “Tweaking policy rates could produce unintended consequences and only fuel financial stability pressures, so it may not be the best instrument to use.”

Bangko Sentral ng Pilipinas is stepping up efforts to curb financial risks as the U.S. unwinds its record monetary stimulus. The central bank, which has held the benchmark interest rate at a record-low 3.5 percent since October 2012, began tightening policy in March by ordering Philippine lenders to set aside more money as reserves.

“Interest rates should be the last to move,” said Jonathan Ravelas, chief market strategist in Manila at BDO Unibank Inc. “BSP will probably further hike the reserve requirement or dip into their macroprudential toolkit.”

The peso rose 0.2 percent to 44.565 per dollar as of 10:44 a.m. in Manila, set to strengthen for a third day. The yield on the 2.125 percent local-currency debt due 2015 fell 13 basis points to 3.38 percent, the lowest in almost two weeks, according to prices compiled by Tradition Financial Services.

Resilient Economy

Heightened exchange-rate volatility, asset bubbles, and excessive corporate leverage are risks brought about by the uneven pace of monetary stimulus withdrawal around the world, Tetangco said. The central bank will maintain a presence in the foreign-exchange market to temper sharp fluctuations in the peso, he said.

“The economy is resilient and will be able to withstand some tightness in monetary conditions,” Tetangco said, citing remittances and infrastructure projects that are boosting spending and investment.

Bangko Sentral raised lenders’ reserve requirement ratio by one percentage point effective this month. Money supply rose more than 30 percent every month in the eight months through February. March money-supply data will be released on April 30.

Consumer prices rose 3.9 percent in March from a year earlier, easing from 4.1 percent in February. The central bank targets inflation to average 3 percent to 5 percent this year. The next policy meeting is scheduled for May 8.

Real-Estate Bubble

Overseas investors bought a net $696.04 million of Philippine stocks this year through April 25, exceeding the annual net inflow in 2013, according to Bloomberg calculations based on data compiled from the stock exchange. Stocks on April 25 had a 20th day of net foreign funds inflows, the longest stretch since November 2011.

While there is no evidence of overstretching of property-asset valuations, the central bank will not hesitate to take measures to curb a real-estate bubble, Deputy Governor Diwa Guinigundo said separately at a briefing last week. Options include lowering the maximum limit of real-estate exposure of banks, he said. Real-estate lending rose 22 percent in 2013 and 29.7 percent in 2012, according to the deputy governor.

President Benigno Aquino is raising spending to a record and seeking more than $11 billion of investments in airports and highways to boost the country’s economic growth to as much as 7.5 percent this year. Gross domestic product rose 7.2 percent in 2013 and 6.8 percent in 2012.

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