Manila: The Philippines has scope to further ease monetary policy this year as inflation moderates and the nation tries to manage capital inflows, central bank Governor Amando Tetangco said.
“The stance of monetary policy remains appropriate but things can change — a possible easing cannot be ruled out,” Tetangco said in an interview in Manila two days ago. “While we have sources of resilience, we also have policy space on the monetary and fiscal sides to do more if necessary.”
The central bank this month banned foreign funds from some deposit accounts, seeking to contain peso gains as faster growth in a nation nearing investment grade lures capital to a bright spot in a struggling global economy. Price pressures have cooled even as expansion topped 6 per cent, and Tetangco said inflation will be in the lower half of his 3 per cent to 5 per cent target.
“We don’t want to see speculative activity impacting the exchange rate and external sectors of the economy,” Tetangco said, adding a good range for the peso is 42 to 43 per dollar as that would reflect the Philippines’ attractiveness while balancing risks.
The currency dropped 0.4 per cent this week to 41.98 per dollar in Manila, according to Tullett Prebon Plc. It has climbed more than 4 per cent in 2012, the best performer in a basket of 11 major Asian currencies tracked by Bloomberg. The Philippine Stock Exchange Index is up about 19.3 per cent this year, exceeding the 1.3 per cent climb in MSCI Asia Pacific Index.
Outpacing southeast Asia
The $225 billion (Dh826,200) economy expanded 6.4 per cent in the first quarter from a year earlier, the fastest pace in Southeast Asia based on a basket of 17 Asia-Pacific economies tracked by Bloomberg. Europe’s debt crisis and the impact of peso appreciation on exports are among risks to the outlook, Economic Planning Secretary Arsenio Balisacan said on July 11.
Bangko Sentral ng Pilipinas has “room to focus on growth should the global economy deteriorate”, said Jan Briace Santos, a fixed-income trader who helps manage the equivalent of $16.7 billion at BPI Asset Management Inc in Manila. “More and more nations are taking pre-emptive measures to fight the slowdown.”
The People’s Bank of China, the Bank of Korea, the European Central Bank and the Bank of England are among monetary authorities that eased policy in July.
The Philippine central bank cut the rate it pays lenders for overnight deposits twice earlier this year, by a combined 0.5 percentage point to 4 per cent, before leaving it unchanged in April and June. Consumer-price growth slowed to 2.8 per cent last month from a year earlier.
Downside inflation risks
“One is never out of danger on inflation, but at this point in time risks are on the downside,” Tetangco said. “The growth of the economy is not at the level that would lead to a breach of the inflation target.”
He said his forecast that price increases will be in the lower half of the 3 per cent to 5 per cent target applies to 2012 and 2013. Economic growth in the second quarter probably remained healthy, he said, without providing an estimate.
The government is “way below” the budget deficit ceiling this year, proving ample scope to further boost state spending, Tetangco added.
Standard & Poor’s on July 4 raised its debt rating for the Philippines to the highest level since 2003, putting President Benigno Aquino one step away from his goal of reaching investment grade. The BB+ assessment is on the same level as Indonesia.
Bangko Sentral two days ago cut rates on high-yielding special deposit accounts following its decision to ban foreign funds from the instrument. The reduction affects 1.64 trillion pesos (Dh143 billion) billion) of placements.
It has also ordered lenders to set aside more funds to cover transactions involving non-deliverable currency forwards to curb speculation. Currency forwards are constantly monitored and “shutting it down is always an option”, Tetangco said.
“Short-term flows can happen very quickly but absorption and use takes time,” Tetangco said. “The interim period has to be managed properly by the monetary authority.”
The central bank next reviews the policy rate on July 26. A report on second-quarter economic growth is due next month.
