Wednesday, 26 January 2011

Philippines prepared to handle inflation -- Fitch

Inflation prospects favorable

SINGAPORE -- The Philippines is better prepared to deal with inflation than some of the Southeast Asian nation’s neighbors that are also suffering from sudden capital outflows, Fitch Ratings said in an interview yesterday.

Fears that some policy makers in Asia are falling behind in a fight against higher prices have accelerated a shift in allocations of foreign investors’ portfolios, so far benefiting Malaysia, South Korea and Taiwan and hurting India, Indonesia and Thailand.

The Philippines has been also swept up with the countries being sold off. A T-bill auction on Monday failed because Manila thought the rates demanded by investors were too high, despite surging secondary market yields.

Andrew Colquhoun, head of Asia Pacific sovereigns at Fitch, is positive on the country, citing some favorable trends at play that will help it weather price pressures.

"Inflation dynamics remain pretty favorable and I think the BSP (Bangko Sentral ng Pilipinas) is one of those with a better track record of delivering appropriate policy," he told the Dealing Room, a Reuters chat room, when asked about inflationary concerns in Asia.

Mr. Colquhoun said in an interview that improved tax collection, relatively strong economic growth and robust remittances from overseas Filipinos were all helping the country’s profile.

Fitch has a BB rating on the Philippines long-term foreign currency debt with a stable outlook.
"It is not a requirement for a watch positive to be issued before an upgrade," Mr. Colquhoun said.

Moody’s rates the country’s debt a notch lower at Ba3, and earlier this month changed its outlook on the Philippines to positive from stable. Standard & Poor’s has the country at BB.

The Philippine peso is the second-worst performing currency in emerging Asia so far this month, just after the Indian rupee. The peso has slid 1.4% against the dollar. The main stock index has lost nearly 6%.

Among the countries that Mr. Colquhoun flagged as vulnerable to sharp policy changes are Indonesia and to some extent India, whose monetary tightening to date has seen little success in pushing back inflation.

The Reserve Bank of India was to meet to set policy on Tuesday, and is widely expected to lift key rates by a quarter percentage point, its seventh increase in the past year.

"Any sign that Indian authorities were acquiescing in double-digit inflation coupled with signs of that spilling over into wages would be negative for that assessment, although not necessarily enough to trigger rating action," he said. -- Reuters

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