Bloomberg News

Philippines Cuts Interest Rate a Second Time to Boost Growth

March 01, 2012

The Philippines cut interest rates for a second straight meeting, joining neighbors Thailand and Indonesia in reducing borrowing costs to shore up growth as the region’s economies strive to withstand Europe’s debt crisis.

Bangko Sentral ng Pilipinas lowered the rate it pays lenders for overnight deposits by a quarter of a percentage point to 4 percent, according to a statement in Manila today. The decision was predicted by 14 of 18 economists in a Bloomberg News survey. Three expected the benchmark to be left unchanged while one forecast a half-point cut.

Policy makers are intensifying efforts to stimulate their economies as the Asian Development Bank warns that Europe’s woes and rising oil prices will exacerbate slowing expansions across the region. Lower borrowing costs may aid Philippine President Benigno Aquino’s efforts to lift growth as he increases government spending to a record and seeks $16 billion of investments in mass rail, airports, and schools.

“I would expect rates to have bottomed out at 4 percent, essentially because of higher oil prices,” said Radhika Rao, an economist at Forecast Pte in Singapore, who predicted the reduction. Faster growth in the fourth quarter and higher government and private spending will influence the next policy decision, she said. The central bank is due to meet April 19.

Weaker Pace

Asian economies may expand at a weaker pace than originally forecast this year, Rajat Nag, ADB managing director-general, said this week. India’s gross domestic product grew at the slowest pace in more than two years last quarter, a report showed yesterday.

“Global economic conditions are expected to stay subdued as fiscal and banking sector headwinds in advanced economies affect global output growth and as market confidence remains fragile,” Bangko Sentral said in a statement today.

The central bank kept its inflation forecast of 3.1 percent for this year and 3.4 percent next year, and Deputy Governor Diwa Guinigundo told reporters today price gains are expected to stay within the lower half of the monetary authority’s goal.

“A consistent climb in prices would cement inflation expectations beyond the forecast, and that could lead to disanchoring of expectations,” he said, adding that monetary policy “will have to deal with that.”

Inflation slowed to a 13-month low in January, and the central bank said this week declining utility costs and a rising currency have led to further easing. Exports (PHEXYOY) slid an eighth month in December.

Still, companies including Manila Electric Co., Maynilad Water Services Inc. and Union Bank of the Philippines are predicting higher profits this year as economic growth boosts demand for electricity, water and loans.

The benchmark Philippine Stock Exchange Index (PCOMP) gained 0.8 percent today. The peso declined 0.2 percent to 42.82 per dollar. It is the third-best performer among 11 Asian currencies tracked by Bloomberg in the past 12 months.

To contact the reporters on this story: Karl Lester M. Yap in Manila at kyap5@bloomberg.net; Max Estayo in Manila at mestayo@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang in Singapore at sphang@bloomberg.net


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