Philippines Holds Rate as Economy Withstands Global Slowdown
Bangko Sentral ng Pilipinas kept the rate it pays lenders for overnight deposits at 3.5 percent, according to a statement in Manila today. The decision was predicted by all 14 economists surveyed by Bloomberg News. The monetary authority lowered borrowing costs by a total 100 basis points this year.
The Southeast Asian country joins Indonesia and South Korea in leaving borrowing costs unchanged this week even as Sri Lanka unexpectedly lowered rates. The Philippine economy grew 7.1 percent last quarter, the fastest pace since 2010, and the central bank today said there is little need for support from monetary policy even as global prospects remain subdued.
“The central bank’s assessment is that the economy is on a much stronger footing now,” said Emilio Neri, an economist at Bank of the Philippine Islands in Manila. Still, “there are a number of signs that both the local and global economy are just not out of the woods yet” and external headwinds can continue to threaten the outlook for growth, he said.
The peso has gained almost 7 percent this year, the best performer after the Korean won among Asia’s 11 most-widely traded currencies tracked by Bloomberg. It slipped 0.1 percent to 41.073 against the dollar today, while the benchmark Philippine stock exchange index fell 0.5 percent at the close, after surging to a record this week.
President Benigno Aquino is increasing spending to a record this year while seeking more than $16 billion of investments in roads and airports to spur growth to as much as 7 percent in 2013. Lawmakers passed a bill this week to raise taxes on cigarettes and alcohol, which may add 184.3 billion pesos ($4.5 billion) in revenue in the next four years.
Inflation slowed to 2.8 percent in November from a year earlier, staying below the central bank’s targeted range of 3 percent to 5 percent from 2012 to 2014. The damage to farms from Storm Bopha is estimated at 11.7 billion pesos, Agriculture Secretary Proceso Alcala said today.
Risks to the inflation outlook are “evenly balanced,” Governor Amando Tetangco said today. Price gains may average 3.2 percent this year, Deputy Governor Diwa Guinigundo said, lower than a previous estimate of 3.3 percent. Consumer prices may rise 3.1 percent next year and 2.9 percent in 2014, he said, compared to earlier forecasts of 3.9 percent and 3.1 percent.
“The Philippine economy has demonstrated resiliency in the first three quarters,” Guinigundo said. “There’s very little need for assistance from monetary policy.”
Moody’s Investors Service raised the country’s credit rating to one step below investment grade in October, helping bring in more pledges from companies including Alliance Global Group Inc. and First Gen Corp. The government signed a peace deal with Muslim guerrillas in the mineral-rich south in October, and said it expects about $1 billion of commitments in Mindanao.
Exports rose less than economists estimated in October on weaker demand for electronics goods. Still, remittances, which make up the equivalent of about 10 percent of gross domestic product, may reach $21.2 billion in 2012 and rise to $22.2 billion in 2013, Guinigundo said today. The Southeast Asian nation may become the world’s No. 3 recipient this year behind India and China, the World Bank has forecast.
Bangko Sentral ordered banks to set aside more funds this year to cover risk on currency forwards. In July, it banned foreign funds from its special-deposit accounts and lowered the rates it pays on them. The central bank is reviewing the risk premium on forwards as a way to limit inflows, Tetangco has said.
“We think the BSP will remain on a prolonged hold through 2013,” said Eugenia Victorino, a Singapore-based economist at Australia & New Zealand Banking Group Ltd. “However, they may choose to raise banks’ reserve requirements or impose capital- flow restrictions.”
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