Bloomberg News

Philippines Refrains From Cutting Rate as Inflation Persists

December 07, 2011

(Updates with comment from central bank in second paragraph.)

Dec. 1 (Bloomberg) -- The Philippines kept its benchmark interest rate unchanged for a fifth meeting as persistent inflation prevented the central bank from joining Indonesia and Thailand in cutting borrowing costs to bolster growth.

Bangko Sentral ng Pilipinas kept the rate it pays lenders for overnight deposits at 4.5 percent, according to a statement in Manila today. The decision was predicted by 14 of 17 economists in a Bloomberg News survey. The central bank raised its inflation forecasts for 2011 to 2013, saying it may have more scope to support growth next year.

Asian policy makers are juggling the need to guard against inflation with mounting pressure to protect the region’s growth, which has been imperiled by a deepening debt crisis in Europe. Thailand cut its benchmark rate yesterday for the first time since 2009, joining Indonesia and Australia in lowering interest rates last month, while Pakistan held rates steady and China cut bank reserve ratios.

“Current interest rates are quite low already, so it has limited room to loosen rates,” said Betty Wang, a Hong Kong- based analyst at Standard Chartered Plc. “We do see a possibility of loosening next year” if economic conditions deteriorate and global demand weakens further, she said in a telephone interview after the policy announcement.

The peso, which lost more than 2 percent in the past three months as Europe’s turmoil prompted investors to shun emerging- market assets, strengthened 0.8 percent to 43.283 per dollar at the close in Manila, according to Tullett Prebon Plc.

Coordinated Action

The Philippine Stock Exchange Index fell 2.8 percent in November. The benchmark rose 1.9 percent today as Asian stocks rallied after central banks took steps to ease Europe’s debt crisis and support economic growth.

Six central banks led by the U.S. Federal Reserve agreed yesterday to cut the cost of providing dollar funding via swap agreements and to make other currencies available as needed. The People’s Bank of China cut banks’ reserve requirements for the first time since 2008.

President Benigno Aquino unveiled a 72 billion-peso ($1.7 billion) fiscal stimulus package in October, pledging to increase spending on roads and bridges to stimulate the domestic economy. Gross domestic product increased 3.2 percent from a year earlier in the third quarter, less than analysts estimated, after exports fell, tropical storms hurt farming and faltering government spending slowed construction.

Not ‘Imperative’

Easing growth has prompted companies including Philippine Long Distance Telephone Co. to cut profit forecasts for this year as consumers cut back on spending. Ginebra San Miguel Inc., a Philippine distiller, reported a third consecutive loss last quarter after revenue declined.

Bangko Sentral Deputy Governor Diwa Guinigundo said this week he doesn’t believe an easing of monetary policy is “imperative” as domestic credit remains strong and borrowing costs are still low.

Philippine inflation accelerated for the second straight month in October, with consumer prices rising 5.2 percent from a year earlier after a 4.8 percent gain in September as utility and food costs increased.

“If inflation pressures turn out to be temporary, then we have the flexibility to support economic growth” at the succeeding policy meetings, Guinigundo said today. Policy makers considered whether to lower borrowing costs or keep them steady, he said. The next meeting will be on Jan. 19.

The central bank cited the impact of storms on rice prices and expectations of higher transportation costs as it raised inflation forecasts. Bangko Sentral will gauge from the November and December consumer price data whether the effect was temporary, Guinigundo told reporters in Manila.

“There’s not much that monetary policy easing can do at this point,” Rafael Algarra, executive vice president of Security Bank Corp. in Manila, said before the decision. “What’s really crucial now is government spending.”

--With assistance from Michael Munoz in Hong Kong, Cecilia Yap, Norman Aquino and Clarissa Batino in Manila. Editors: Stephanie Phang, Sunil Jagtiani

To contact the reporters on this story: Karl Lester M. Yap in Manila at; Max Estayo in Manila at

To contact the editor responsible for this story: Stephanie Phang in Singapore at

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