Philippines Holds Benchmark Rate as Asia Braces for Outflows

  • Inflation forecasts raised to 2.4% for 2016, 3.2% for 2017
  • Central bank sees room to assess, calibrate tools as needed

The Philippines left its key interest rate unchanged while boosting inflation forecasts for the next two years, as Asian central banks brace for outflows after the U.S. Federal Reserve’s tightening.

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

“Keeping monetary policy settings steady at this juncture would allow the BSP some room to continue to assess evolving global economic conditions and calibrate its policy tools as appropriate,” Governor Amando Tetangco said at a briefing in Manila.

Asian stocks rose Thursday after the Fed embarked on what it said would be a gradual tightening cycle, with some emerging nations including the Philippines still sounding caution about possible capital outflows. The peso is at a six-year low against the U.S. dollar and most Asian currencies have declined against the greenback this year.

Quickening growth has supported Bangko Sentral’s decision to refrain from joining neighbors including Singapore, Thailand in adding stimulus this year. Taiwan cut its key rate for a second straight quarter on Thursday, while Indonesia kept borrowing costs unchanged.

Firm Demand

Philippine economic growth quickened to 6 percent last quarter, among the fastest in the region, and the central bank said Thursday that domestic demand will stay firm, supported by robust spending and liquidity.

Inflation will return to the target path of 2 percent to 4 percent in 2016 and 2017 after missing the goal this year, Tetangco said. The average consumer price gain is forecast to be 2.4 percent next year and 3.2 percent in 2017, higher than estimates in November, Deputy Governor Diwa Guinigundo said.

“Until the central bank sees inflation exceeding 3 percent, which is the midpoint of their target, it sees little reason to ponder on tightening,” said Emilio Neri, an economist at Bank of the Philippine Islands in Manila. “There’s also the aspect of allowing more flexibility for the peso. While the peso is depreciating, it’s doing so much less than other emerging-market currencies.”

Peso Weakens

The peso fell 0.1 percent to 47.395 against the dollar on Thursday, its lowest close since Nov. 5, 2009, according to Bankers Association of the Philippines. The currency has slid about 5.7 percent this year.

Regional currencies may continue to fall against the U.S. dollar, and money may flow out of developing countries, although not in the "significant magnitudes" seen in the past, Tetangco said earlier Thursday.

Money sent by Filipinos overseas are already at a high base, and growth of 4 percent to 5 percent is realistic going forward, Guinigundo said. Remittances were little changed in October from a year earlier.

BSP will "stand hold for now and observe how conditions are after the Fed meeting," Joseph Incalcaterra, a Hong Kong-based economist at HSBC Holdings Plc, said before the decision. "Growth has held up relatively well. With liquidity in the system abundant and with inflation so low, there’s no need to tweak policy."

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