Philippines keeps rate at a record-low to spur growth

The Philippine central bank kept borrowing costs unchanged at a record low to boost growth after damage caused by tropical storms in the past month threatened the Southeast Asian nation’s economic recovery.

Bangko Sentral ng Pilipinas kept the rate it pays lenders for overnight deposits at 4 percent for a third straight meeting, saying that current settings are “appropriate.” That’s the lowest level since central bank data started in 1990. The inflation forecast was raised for a second meeting to reflect pressures brought in part by crop losses from storms that are “not expected to have a long-lasting impact” on prices.

“There is still quite a bit of fragility in the economic recovery,” said Vishnu Varathan, an economist at Forecast Singapore Pte. “They don’t want to sound hawkish but on the other hand, they have to slowly phase in that there is increasing but not overwhelming price stability issues as we head into 2010.”

Tropical storms in the past month destroyed about 38 billion pesos ($800 million) of crops, roads and bridges, the government estimates. The Philippines’ $167 billion economy will likely expand at the lower end of the government’s 0.8 percent- to-1.8 percent target this year, Economic Planning Secretary Augusto Santos said October 23.

Easing inflation allowed the Philippine central bank to slash its key interest rate by 2 percentage points from December to July to bolster growth as exports collapsed. Consumer prices rose 1.6 percent in October, the fastest pace in five months, the statistics office reported today.

Faster Inflation

Inflation will likely average 3.38 percent this year and 4.02 percent next year, deputy Governor Diwa Guinigundo said today. That compares with forecasts of 3.03 percent for 2009 and 3.43 percent for 2010 on October 1. Inflation in 2011 is projected at 3.4 percent.

“As expected, the uptick was primarily due to supply pressures in agricultural products brought about by the recent typhoons,” central bank Governor Amando Tetangco said earlier today, referring to October inflation. “We expect this to be largely temporary, with the underlying near-term trend remaining manageable,” he said.

The Philippine peso, near a six-week low, has declined 0.5 percent this year against the dollar, the worst performance among Asia’s 10 most-traded currencies excluding Japan’s, according to Bloomberg data.

Weaker Currency

A weak currency may fan inflation in the nation which buys almost all its oil overseas and is the world’s biggest rice importer. Yet authorities have to balance requirements for a currency level that boosts exports and overseas remittances while curbing import costs.

Bangko Sentral has a “neutral stance with an easing bias,” Guinigundo told reporters in Manila. “There are developments in the market that are very difficult to predict. We have to be more circumspect in appreciating signs of emerging” price pressures, he added.

Policy makers maintained the key rate to buoy the economy that’s recovering from the worst flooding in at least 40 years in its capital.

Philippine Long Distance Telephone Co., the nation’s largest company by market value, cut its 2009 revenue target this week, saying customers may limit purchases of mobile-phone credits and internet use to pay for typhoon repairs and furniture replacements.

Budget Deficit

President Gloria Arroyo, whose term ends next year, has boosted spending to shield the economy from the worst global recession since the 1930s. Her government expects to post the biggest budget deficit this year since at least 1985, when Bloomberg data began.

The Philippine economy expanded 1.5 percent in the second quarter from a year earlier, quickening from a decade-low 0.6 percent in the previous three months.

Asian economies may need to “maintain policy support for some time” to sustain their recovery, the International Monetary Fund said last week. Malaysia and India refrained from following Australia in raising interest rates last month, even as the Reserve Bank of India ordered banks to keep more cash in government bonds to begin exiting its record monetary stimulus.

An improving domestic economy, higher commodity prices, the El Niño conditions in the Pacific area, and the petition for higher utility rates pose risks to consumer prices, Guinigundo said today.

The central bank vowed to “adjust monetary policy settings if needed to achieve its price stability objective.”

The Reserve Bank of Australia this week raised its benchmark interest rate for the second straight month, becoming the only nation to increase borrowing costs twice this year as the global economy recovers. Indonesia kept its key rate unchanged yesterday.

http://www.bloomberg.com/apps/news?pid=20601068&sid=aGNec0.Dhqvo

 

Category: Philippines