Philippines Keeps Rate on Hold as Markets Brace for Turmoil

  • All 17 economists surveyed by Bloomberg predicted decision
  • Bank lowered rate last month as part of policy revamp

The Philippines left its benchmark interest rate unchanged in its first meeting since revamping its policy framework, providing stability to investors in the face of possible market fallout if the U.K. votes to exit the European Union.

Bangko Sentral ng Pilipinas kept the overnight borrowing rate at 3 percent, it said in Manila on Thursday, as predicted by all 17 economists surveyed by Bloomberg. The bank lowered the rate last month and narrowed the band around it to make monetary policy more effective.

Policy makers are saving their firepower as incoming President Rodrigo Duterte lays out plans to boost economic growth when he takes office on June 30. The bank also has reason to hold as a U.K. referendum that’s too close to call threatens to tip markets into panic and dent a global recovery that’s remained moderate and uneven.

“Domestic economic activity continues to be firm, supported by solid private household consumption and investment, buoyant business and consumer sentiment, and adequate credit and domestic liquidity,” Deputy Governor Nestor Espenilla said in a statement. “Higher fiscal spending is also expected to further boost domestic demand.”

Inflation in the Southeast Asian nation accelerated to 1.6 percent in May from 1.1 percent in the previous month. The central bank’s target is to keep inflation at an average of 2 percent to 4 percent between 2016 and 2018.

Brexit Risks

The bank will probably keep interest rates unchanged for the rest of the year given the weak inflation outlook, said Joseph Incalcaterra, a Hong Kong-based economist at HSBC Holdings Plc.

“Normally, if there’s an expansion in fiscal policy there would be some inflation concerns,” he said. “But given that commodity prices remain subdued and potential increased public spending will be for 2017, we don’t necessarily think BSP will have to tweak policy in regard to that.”

Central banks across Southeast Asia are bracing themselves for potential market turmoil if the U.K. votes to leave the EU.

The Bank of Thailand left its benchmark rate unchanged at 1.5 percent on Wednesday, flagging risks from Brexit, while Finance Minister Apisak Tantivorawong said today the bank is prepared to handle any impact of the referendum on the nation’s markets.

The Philippines is prepared to take “whatever action is necessary should there be any negative impact” from the vote, Diwa Guinigundo, deputy governor of Philippines central bank, told reporters. The “baseline assumption is to remain in Europe, so the expected fallout in the foreign exchange market may be muted,” he said.

Malaysia’s central bank said it will extend trading hours for the ringgit on Friday, adding that financial markets have ample liquidity and are well positioned to face any major volatility.

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