Philippines unexpectedly cuts interest rate to a record low

Manila: The Philippines unexpectedly cut interest rates a third time this year to a record low, as easing inflation gives the central bank scope to spur growth.

Bangko Sentral ng Pilipinas reduced the rate it pays lenders for overnight deposits to 3.75 per cent from 4 per cent, according to a statement in Manila on Thursday. The decision was predicted by four of 16 economists in a Bloomberg News survey. Eleven forecast no change, while one predicted a half-a- percentage-point cut.

Central bank officials in Japan and Thailand indicated on Wednesday that they are ready to ease monetary policy if necessary as Spain’s borrowing costs rise and Greece risks exiting the euro. The International Monetary Fund said this week China’s slowing economy faces significant downside challenges, and South Korea’s economy grew at the slowest pace in almost three years, a report yesterday showed.

“There are fairly significant external risks brewing that could derail the economy,” Euben Paracuelles, a Singapore-based economist at Nomura Holdings Inc., said before the decision. BSP is using the opportunity “to ease policy now, when the inflation outlook allows them to,” he said.

That’s prompted the central bank to tighten rules on capital inflows by banning foreign funds from investing in its so-called special deposit accounts, or SDAs, this month. Bangko Sentral also lowered the rates it pays on SDAs on July 13.

Inflation eased in June, with consumer prices rising 2.8 percent from a year earlier, after climbing 2.9 per cent in May. Governor Amando Tetangco said this week “there is some scope to adjust monetary policy” to protect its target for price gains.

The International Monetary Fund last week cut its global growth forecast for next year to 3.9 per cent, 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.

The Bank of Japan “will not hesitate” to loosen monetary policy should the world’s third-biggest economy face shocks, Deputy Governor Hirohide Yamaguchi said. Thai Assistant Governor Paiboon Kittisrikangwan said “we are ready to do more” if conditions deteriorate, after leaving borrowing costs unchanged for a fourth meeting on Wednesday.

The Philippine Stock Exchange Index rose to a record this month, as companies including BDO Unibank Inc. and Manila Electric Co. predict higher profits.