Philippines Cuts Key Rate a Fifth Time to Revive Slowing Growth
The Philippine central bank cut its benchmark interest rate a fifth consecutive meeting to boost the economy after first-quarter growth slumped to the weakest in a decade.
Bangko Sentral ng Pilipinas reduced the rate it pays lenders for overnight deposits by a quarter of a percentage point to a 17-year low of 4.25 percent, Governor Amando Tetangco said in Manila today. The decision was predicted by nine of the 12 economists surveyed by Bloomberg News.
Easing inflation has allowed policy makers worldwide to slash interest rates as the worst global slump since the Great Depression pushed Asian nations including Singapore and Taiwan into recession. The Philippines’ $144 billion economy expanded 0.4 percent in the first quarter, less than the 2.4 percent median estimate of 14 economists surveyed by Bloomberg.
“Inflation is going to be subdued for a while,” said Luz Lorenzo, an economist at ATR-Kim Eng Securities Inc. in Manila. “The hope is that the economy will strengthen in future months. Economic growth would be much worse without the previous rate cuts.”
The government’s 2009 budget deficit may exceed 250 billion pesos ($5.3 billion) as it spends to battle the global slump while revenue falters, Economic Planning Secretary Ralph Recto said in Manila today. Monetary policy is now “more important” than public spending in supporting the economy, he said May 21.
“Given the much, much lower-than-expected growth, the central bank can cut more aggressively,” said Angeline Sia, a trader who helps manage about $8 billion at BPI Asset Management in Manila. “Reducing interest rates will help counter the government’s inability to spend as much as it had promised to boost the economy.”
Spending Slides
Slowing growth is crimping tax collection, threatening President Gloria Arroyo’s ability to implement 330 billion pesos ($7 billion) of government spending and other measures low fee payday loans. Public spending slid to the lowest in six months in April as revenue fell from a year earlier.
The government, which predicts 2009 growth may slow to as little as 3.1 percent, the weakest pace in eight years, may cut its forecast as reaching the 3.1 percent target will be “a challenge,” Budget Secretary Rolando Andaya said today.
Exports, which account for about a third of the $144 billion economy, have fallen for six straight months as demand for Philippine-made Intel Corp. computer chips and The Gap Inc. clothing fell. Intel, whose shipments through the Philippines are equivalent to about a 10th of the nation’s exports, will close its factory in the country this year.
Bangko Sentral has cut its benchmark interest rate by 1.75 percentage points since mid-December.
Nearing End
Still, the Philippines may be nearing the end of its interest-rate cuts, said Radhika Rao, an economist at IDEAglobal Ltd. in Singapore.
“Fiscal spending will likely takeover as the main source of stimuli for domestic growth,” she said.
Thailand’s central bank unexpectedly kept interest rates on hold last week, joining policy makers in Malaysia and South Korea in pausing amid signs the worst may be over for Asia’s economies. Japan’s government raised its assessment of the economy for the first time in three years this week.
“The challenge to public policy is to accelerate public spending as monetary policy has been accommodative since late 2008,” central bank Governor Amando Tetangco said in a mobile-phone text message today. “We can avoid a recession with the right mix of public policy and market confidence.”
Filed under: finance by Finance Boss