By Clarissa Batino and Karl Lester M. Yap March 23 (Bloomberg) — The Philippine central bank is unlikely to raise its main interest rate in the first half of 2010 to avoid endangering an economic rebound that’s just starting, Governor Amando Tetangco said. “We don’t want to stymie the recovery,” Tetangco, 57, said in an interview in his office in Manila yesterday. “I don’t see large, chunky movements in interest rates this year. Inflation remains manageable and within target.” Tetangco’s approach contrasts with central banks in India and Malaysia that have raised borrowing costs this year as economic expansion quickens and inflation returns. Philippine growth of 1.8 percent last quarter was less than Malaysia’s 4.5 percent, while India’s gross domestic product may rise 7.2 percent in the year to March 31, according to the government. The central bank “remains cautious on growth and would want momentum to build further,” said Prakriti Sofat , a Singapore-based economist for Barclays Capital. Any increase in the benchmark interest rate may happen only in the third quarter, she said. Bangko Sentral ng Pilipinas pared back a lending program for banks this month, while keeping the benchmark interest rate at a record-low 4 percent. The central bank on March 11 cut its 2010 inflation forecast to an average of 4.64 percent from 4.7 percent while raising next year’s projection to 3.45 percent from 3.27 percent. Consumer-price gains in the Philippines eased for a second month in February to 4.2 percent. Inflation Forecast Bangko Sentral expects inflation to average 4.43 percent this year, lower than its March 11 estimate, Tetangco said yesterday. Consumer price increases will probably peak at 5.13 percent in June, he said. “A rate increase in the first semester is unlikely, except if the risks suddenly increase due to unforeseen events,” Tetangco said. “We don’t see any strong evidence that interest rates should be raised anytime soon.” He considers the El Nino dry weather pattern, higher energy prices and a delayed exit of stimulus measures by advanced economies as factors that may pose “upside risks” to inflation . “The risk is really food prices because of the El Nino,” Ramon Lim , treasurer at Philippine National Bank in Manila, said before the interview. “There is no imminent threat to inflation,” and a strengthening peso will lessen the pressure on prices, he said. Withdrawing Stimulus The peso on March 19 touched 45.522 per dollar, its strongest level since January 12, according to inter-dealer broker Tullett Prebon Plc. The central bank this month reduced the budget for its rediscounting facility, which provides loans to banks, after raising the interest rate on the lending program in February. The rediscounting window allows lenders to borrow using loans as collateral. “We can afford to remain accommodative,” the governor said yesterday. The central bank will continue to unwind some of the liquidity measures implemented during the global crisis, and another cut in its rediscounting budget “is easier to do,” while higher interest rates for the facility is being studied, he said. The Reserve Bank of India last week increased the benchmark reverse repurchase rate to 3.5 percent from a record-low 3.25 percent, saying containing inflation has become “imperative.” Australia and Malaysia raised borrowing costs this month as inflation returns to Asia amid the global economic recovery. Eight of nine economists in a Bloomberg News survey this month predict Bangko Sentral will keep the benchmark rate at 4 percent in the second quarter. Reserve Requirement The central bank may not need to increase the amount of cash banks are required set aside as reserves “if the inflation outlook continues to be favorable,” Tetangco said. “Several years ago, we already planned to reduce the reserve requirement. We can continue to pursue that objective, to gradually reduce it.” The government forecasts the economy will expand 2.6 percent to 3.6 percent in 2010 after growing 0.9 percent last year. President Gloria Arroyo , whose term ends this June, has increased outlays on airports, bridges and state programs to a record 1.54 trillion pesos ($34 billion) this year to bolster growth. Ayala Land Inc ., the nation’s biggest property developer, said this month it expects to sell more than 9,000 homes this year, a record for the company, helped by low borrowing costs and money sent home by Filipinos working abroad. Bangko Sentral is sticking to its forecast of a 6 percent growth in overseas remittances “for now,” Tetangco said. “I wouldn’t be surprised if based on a review later on, there may be a need to adjust it upward,” he said. Money sent home by Filipinos overseas rose 8.5 percent in January. To contact the reporter on this story: Clarissa Batino in Manila at cbatino@bloomberg.net ; Karl Lester M. Yap in Manila at kyap5@bloomberg.net
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Philippines May Keep Key Rate at Record-Low in First Half to Spur Recovery
