Bloomberg News

Thailand, Philippines May Resist Rate Cut as Growth Holds Up

July 23, 2012

Thailand and the Philippines will probably refrain from cutting interest rates this week as the Southeast Asian economies withstand a global growth slowdown that spurred policy easing from Brazil to China.

The Bank of Thailand will keep its benchmark unchanged at 3 percent for a fourth straight meeting tomorrow, according to all 13 economists in a Bloomberg News survey. Eleven of the 14 analysts in a separate survey forecast the Philippines will hold rates at 4 percent the next day, even as more predicted a reduction this month than for the June meeting.

Both countries forecast growth as fast as 6 percent in 2012, aided by government spending in the Philippines and post- flood reconstruction in Thailand, which this month marks 15 years since its baht devaluation sparked the Asian financial crisis. Inflation risks may also re-emerge and crimp scope for easing as a U.S. drought pushes corn and soybean to records and India’s monsoon shortfall threatens rice output in the No. 2 producer.

“Monetary policies in Southeast Asia are fairly accommodative and that’s enough to support growth for now,” said Aninda Mitra, Singapore-based head of Southeast Asian economics at Australia & New Zealand Banking Group Ltd. (ANZ) “The scope to cut rates is tempting but it will be too premature at this point, as inflation risks could be exacerbated.”

The MSCI Asia-Pacific Index (MXAP) of regional shares has fallen about 17 percent in the past year as the deepening European sovereign-debt crisis spurred outflows from emerging markets.

Global Growth

The International Monetary Fund last week cut its global growth forecast for next year to 3.9 percent, and the Asian Development Bank said the region’s economies may need to ease monetary and fiscal policies further, after reducing its predictions for expansion for 2012 and 2013.

South Korea, which unexpectedly lowered borrowing costs July 12, may report the slowest growth since 2009 for the second quarter. The country’s economy expanded 2.5 percent from a year earlier last quarter, compared with a 2.8 percent pace in the previous three months, according to the median estimate of 15 economists surveyed ahead of a July 26 report.

Weaker demand may cap overseas sales at South Korea’s largest companies, with Samsung Electronics Co. posting second- quarter sales that trailed estimates. South Korean manufacturers’ confidence fell to the lowest level in four months for July while consumer confidence dropped to a three- month low in June, according to Bank of Korea reports last month.

Slower GDP

Gross domestic product probably grew 0.5 percent from the previous quarter, slowing from a 0.9 percent pace, according to the median estimate of 13 economists. The Bank of Korea lowered its 2012 growth forecast to 3 percent from an earlier estimate of 3.5 percent on July 13, a day after it unexpectedly cut its benchmark rate by a quarter percentage point to 3 percent.

Separately, the Reserve Bank of New Zealand will maintain its official cash rate at a record-low 2.5 percent on July 26, according to all 16 economists in a Bloomberg News survey. Governor Alan Bollard has kept borrowing costs unchanged since March 2011 to boost growth that was hurt by last year’s deadly earthquake in the city of Christchurch.

Seven of nine members of a so-called shadow board set up by the New Zealand Institute of Economic Research Inc. said the central bank should hold the benchmark rate again. Two members of the panel comprised of economists, academics and company executives preferred a rate cut.

Inflation Readings

Price gains in the Philippines and Thailand are still lower than in neighbors including Indonesia and Vietnam. Consumer prices in the Philippines rose 2.8 percent in June from a year earlier, after climbing 2.9 percent in May. The central bank predicts inflation will be within its 3 percent to 5 percent target this year and next.

In Thailand, consumer prices increased 2.56 percent from a year earlier in June. Core inflation, which excludes fresh food and fuel costs and is used by the central bank to guide monetary policy, was 1.92 percent last month.

Thai Prime Minister Yingluck Shinawatra has raised minimum wages and will spend as much as 2 trillion baht ($63 billion) over seven years on infrastructure projects to boost growth after last year’s floods. The $346 billion economy unexpectedly expanded 0.3 percent from a year earlier in the first quarter, after contracting 8.9 percent in the previous three months.

Fiscal Support

Philippine President Benigno Aquino, who marked his second year in office in June, is increasing state spending to a record this year as he seeks $16 billion of investments in roads and airports. The $225 billion economy expanded 6.4 percent in the first quarter, the fastest pace since 2010.

Bangko Sentral ng Pilipinas has scope to loosen policy, Governor Amando Tetangco said earlier this month, while Bank of Thailand Governor Prasarn Trairatvorakul said in June authorities have room to adjust borrowing costs if needed.

Thailand “will likely maintain the key rate at 3 percent until the end of the year,” said Santitarn Sathirathai, a Singapore-based economist at Credit Suisse Group AG. “We don’t expect any surprises unless Europe collapses, which of course will prompt a further rate cut. If the economy continues to be strong, we may see a more hawkish statement later this year and probably a rate hike next year.”

To contact the reporter on this story: Karl Lester M. Yap in Manila at; Suttinee Yuvejwattana in Bangkok at

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

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