Manila expected to hold rates after string of increases

Manila: The Philippine central bank is expected to leave interest rates on hold on Monday after a string of rises since June, signalling a shift of priorities towards protecting growth in the face of the global credit crisis.

Altogether 9 of 11 analysts polled on Friday said the central bank would keep its interest rates steady to support growth after it had raised rates by 1 percentage point since June to combat inflation. Two forecast a 25 basis point rate rise.

The analysts also forecast that annual inflation was 12.3 per cent in September, edging back from a 17-year high in August of 12.5 per cent.

Such data would not only provide credence to official arguments that inflation may be peaking but would also back up any move by the central bank to a neutral policy stance from a tightening one.

"Growth concerns have supplanted price pressures as the economic priority and that will stay the central bank's hand," said Radhika Rao, an economist at IDEAglobal in Singapore.

"The extent of global financial turmoil and weakening domestic growth will prepare the groundwork for rate cuts and we reckon the shift could come as early as the first quarter of 2009."

September inflation of 12.3 per cent would fall within the central bank's forecast of 11.8 per cent to 12.7 per cent. Rate cuts are moving up the policy agenda globally as central banks brace for the impact of the global credit crisis.

The Philippines over-night borrowing rate is 6 per cent and its overnight lending rate 8 per cent.

In Asia, China and Taiwan cut their policy rates last month to cushion economies from a global downturn. Since a flood of money from central banks has had limited impact on loosening global credit markets, a round of cuts in interest rates may be the next step.

Economic growth has slowed in the Philippines since the start of the year and the government has scaled down its growth forecast for the second time this year. It now sees growth in a range of 4.4 per cent to 4.9 per cent, down from its previous forecast of 5.5 per cent to 6.4 per cent.

"The BSP (central bank) is seen ending its tightening cycle given that risks to growth outweigh at this point," said Vishnu Vara-than, an economist.