Thursday, 5 March 2009

Philippines Cuts Rate Less Than Expected on Inflation

By Clarissa Batino and Karl Lester M. Yap

March 5 (Bloomberg) -- The Philippine central bank cut its benchmark interest rate by a less-than-expected quarter point today, saying it’s studying the impact of previous reductions after inflation unexpectedly accelerated.

Bangko Sentral ng Pilipinas lowered the rate it pays lenders for overnight deposits to 4.75 percent, Governor Amando Tetangco said in Manila today. The decision was predicted by one of the 12 economists surveyed by Bloomberg News. The rest expected a half-point reduction.

Higher inflation risks led to the “more measured adjustment,” Tetangco said. Still, inflation in 2009 and 2010 should remain “within target,” he said.

The peso rose for a third day today after a report showed inflation quickened for the first time in six months in February, paring expectations on the magnitude of a rate cut. Asian policy makers have unveiled stimulus packages worth almost $700 billion and lowered borrowing costs as the global slump pushed Japan, Singapore and Taiwan into recession.

“A relatively stable financial system and robust growth prospects suggest that there is no urgency for aggressive rate cuts,” said Frederic Neumann, an economist at HSBC Holdings Plc in Hong Kong. The central bank “can afford to move cautiously and await further exchange-rate and inflation developments before taking the axe to the policy rate again.”

The peso rose 0.1 percent to 48.64 against the dollar at 5:06 p.m. in Manila, according to Tullett Prebon Plc.

16-Year Low

Today’s cut by the Philippine central bank brings the total reduction in its key rate to 1.25 percentage points in the three meetings since mid-December. The benchmark is at the lowest since May 1992, according to Bangko Sentral.

Inflation unexpectedly accelerated to 7.3 percent in February, compared with forecasts for a slowdown in a Bloomberg News survey, a government report showed today. Still, price gains have slowed from a 16-year high of 12.4 percent in August.

Inflation risks are coming from rising prices of agricultural commodities, water and power, Deputy Governor Diwa Guinigundo said today. Government efforts meant to accelerate growth could also have “liquidity implications,” he said.

“We’re still easing,” he said after the rate decision. “We have not paused. It’s also important to give ourselves time to pause and assess the impact of previous rate reductions. Flexibility is less now compared to January.”

Indonesia, India

Neighboring Indonesia yesterday reduced its benchmark interest rate to 7.75 percent, the lowest in almost four years, and India cut its repurchase rate to a record low of 5 percent. Malaysia last week lowered its overnight policy rate for a third straight meeting to 2 percent to bolster an economy that policy makers say faces an increasing risk of contracting this year.

“It’s a sympathy cut,” said Rico Gomez, who helps manage $1 billion in assets at Rizal Commercial Banking Corp. in Manila. “There’s really no compelling need to cut the rate now but it’s joining other countries because there are still questions with regards to how economic growth will be maintained.”

The Philippines’ $144 billion economy may expand as little as 3.7 percent in 2009, the least in eight years, as exports by manufacturers such as Texas Instruments Inc. drop and demand for Filipino workers overseas dwindles, the government predicts.

President Gloria Arroyo, who expects to post the biggest budget deficit since 2004 this year as her government boosts spending to spur growth, said last week the central bank has “some more room to ease” monetary policy.

The central bank may use “other monetary policy instruments” to boost growth, Guinigundo said today.

To contact the reporter on this story: Clarissa Batino in Manila at; Karl Lester M. Yap in Manila at
Last Updated: March 5, 2009 04:36 EST

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