Philippines Holds Rate to Shield Economy From Growth Risks

  • Nation among most vulnerable in Asia from Trump presidency
  • Central bank raised inflation forecasts for 2016 to 2018

The Philippines left its benchmark interest rate at a record low to shield one of the world’s fastest-growing economies from the market fallout following Donald Trump’s victory in the U.S. election.

Bangko Sentral ng Pilipinas kept the overnight borrowing rate at 3 percent, it said in Manila on Thursday, as predicted by all 16 economists surveyed by Bloomberg. Policy makers raised inflation forecasts for this year until 2018.

Central banks in the region face rising pressure to stabilize financial markets whipsawed by the U.S. election results with the peso trading near levels last seen during the global financial crisis. President Rodrigo Duterte’s violent crackdown on drugs and foreign policy shift away from the U.S. is spooking investors even as economic growth is seen exceeding 6 percent until 2018.

"The main driver for monetary policy is firmly rooted on the inflation outlook," said Euben Paracuelles, an economist at Nomura Holdings Inc. in Singapore. "These external risks matter only to the extent that they impact the currency and influence the inflation path."

Most Vulnerable

The Philippines is one of the most vulnerable nations in Asia should Trump follow through with imposing trade barriers and tighter immigration controls. The Southeast Asian nation has one of the biggest export exposures to the U.S. in the region, while about 35 percent of Filipinos working abroad are in the U.S., providing a key source of foreign-exchange inflows to the economy.

Click here to read how Trump’s win is Asia’s economic loss if trade barriers rise.

Consumer prices rose 2.3 percent in October from a year earlier. The central bank’s target is for inflation to average 2 percent to 4 percent in 2016 to 2018.

While inflation remains manageable, the risk is tilted to the upside largely due to petitions for higher electricity rates and the proposed tax policy reform, the central bank said in a statement. The faster inflation outlook supports the prospect that Bangko Sentral will be the only Asian central bank to raise interest rates in the first half of 2017, Paracuelles said.

Officials aren’t concerned about the peso as long as volatility is in check, given that movements are driven by fundamentals and sentiment, Deputy Governor Diwa Guinigundo said at a briefing. The peso, which closed 0.1 percent lower on Thursday at 48.66 per dollar, is trading near levels reached in September 2009.

BSP has “ears on the ground” so it can swiftly act if there’s need to change the policy stance, Guinigundo said.

“The central bank’s mandate is to look through the noise and focus on fundamentals,” Eugenia Victorino, an economist at Australia & New Zealand Banking Group Ltd. in Singapore, said before the decision. “Philippines’ economic fundamentals remain strong, and the BSP is expected to focus on maintaining inflation that supports sustainable growth.”

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