Philippines Holds Benchmark Interest Rate as Inflation Slows

The Philippines kept its benchmark interest rate unchanged for a third straight meeting, refraining from joining a wave of global monetary policy easing even as inflation slowed.

Bangko Sentral ng Pilipinas kept the rate it pays lenders for overnight deposits at 4 percent, it said in Manila Thursday. The decision was predicted by all 18 economists surveyed by Bloomberg News. Policy makers also held the rate on so-called special deposit accounts at 2.5 percent, as forecast by all 10 analysts.

A growth rebound is reducing the need for the Philippines to stimulate the economy, in contrast to at least a dozen nations from Canada to India where central bank officials have eased monetary policy this year. Bangko Sentral today lowered its inflation forecast for this year and next, and said there may be potential price pressure from utilities.

“The soft inflation outlook gives the BSP enough space to keep its policy tools steady through 2015,” Eugenia Victorino and Glenn Maguire, analysts at Australia & New Zealand Banking Group Ltd., said in a note. “Unlike numerous economies which have eased monetary conditions over the past two months, supply constraints in the Philippines remain.”

The peso closed 0.1 percent lower at 44.365 per dollar before the decision. It has strengthened about 1 percent in the past 12 months, the biggest gain among 24 emerging-market currencies tracked by Bloomberg. The benchmark Philippine Stock Exchange index rose to a record on Monday.

Stronger Peso

The central bank today lowered its inflation forecast for this year to 2.3 percent from 3 percent earlier, and its prediction for 2016 to 2.5 percent from 2.6 percent. Lower oil and a stronger peso prompted the cuts, Deputy Governor Diwa Guinigundo told reporters.

While an anticipated rate increase by the Federal Reserve could trigger capital outflows, looser monetary policies in Europe and Japan may draw inflows to the Philippines as its macroeconomic fundamentals are more favorable than other emerging markets, Guinigundo said. Stable inflation, a current-account surplus and sufficient fiscal space to boost growth show its strength, he said.

The economy grew 6.9 percent in the three months through December from a year earlier, the fastest in five quarters. Consumer prices rose 2.4 percent in January from a year ago, the slowest pace since August 2013.

President Benigno Aquino, who steps down in June 2016, is ramping up spending on roads and airports to spur growth to as much as 8 percent this year and next. Prospects for domestic activity remain firm, with the pace of expansion and inflation supporting the policy stance, Governor Amando Tetangco said.

“The most aggressive they can be this year is to stay neutral,” said Emilio Neri, an economist at Bank of the Philippine Islands in Manila. “What could trigger BSP to ease the benchmark rate is a persistent inflation print below 2 percent, which is highly unlikely.”

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