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Philippine Finance Chief Expects 6.5% GDP Growth in 2018

Government comfortable with the current level of the peso as it absorbs shocks

Manila: Philippine Finance Secretary Carlos Dominguez said the economy will sustain growth exceeding 6 percent this year, as investment and infrastructure spending help counter the impact of higher interest rates.

"We're confident that we can weather the storms but we're not complacent,"  Dominguez said in an interview with Bloomberg Television in Bali on Thursday, when asked about inflation. "Definitely, rising interest rates will have a detrimental effect on our growth prospects but we're still expecting around 6.5 percent growth for the whole year."

Economic growth slowed to a three-year low of 6 percent in the second quarter, with the government set to report third-quarter data on Nov. 8. The Philippines is battling surging prices and a weakening currency that's forced the central bank to raise interest rates by 150 basis-points since May.

Dominguez, a member of the central bank's Monetary Board, said future actions will depend on the data. Deputy Governor Diwa Guinigundo on Wednesday said policy makers are ready to tighten monetary policy further if needed.

"We will act appropriately depending on what the data shows,"  Dominguez said. "If more aggressive actions are required, we will take it. If not, we will ease off."

Higher tax revenue and "a tremendous amount"  of loans from China, Japan and South Korea will help the Philippines fund its infrastructure program that's counted on to cushion the economy from risks such as the trade war, Dominguez said. The Philippines had aspired for a 7 percent to 8 percent growth this year, which is no longer attainable, according to at least two economic officials.

Shock Absorber

Inflation accelerated to 6.7 percent in September, the fastest pace in more than nine years. The peso has lost about 8 percent this year, among the worst performers in Asia. The benchmark stock index is heading for its lowest level since December 2016 after a record streak of foreigners' withdrawals.

The government is comfortable with the current level of the peso as it absorbs shocks, Dominguez said. "We don't want these pressures to build up and not be reflected in the interest rates or the exchange rate,"  he said.

The government has enough funds and can afford to continue rejecting bids from investors seeking higher rates on bills and bonds, Dominguez said.

The Bureau of the Treasury had sold just about half of the 90 billion pesos ($1.7 billion) of government securities offered in September, as banks sought higher yields. The government is turning to global investors with a plan to sell $1.5 billion of dollar bonds and up to $500 million of debt denominated in euros or Swiss francs.

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