Bangko Sentral yesterday kept borrowing costs unchanged at a record low to boost growth after damage caused by tropical storms in the past month threatened the economic recovery.
The central bank kept the rate it pays lenders for overnight deposits at 4 percent for a second straight meeting, it said in a statement yesterday. That’s the lowest level since central bank data started in 1990. All 14 economists surveyed by Bloomberg News expected the decision.
“There is still quite a bit of fragility in the economic recovery,” said Vishnu Varathan, an economist at Forecast Singapore Pte. “They don’t want to sound hawkish but on the other hand, they have to slowly phase in that there is increasing but not overwhelming price stability issues as we head into 2010.”
Tropical storms in the past month destroyed about P38 billion of crops, roads and bridges, the government estimates. The Philippines’ $167-billion economy will likely expand at the lower end of the government’s 0.8-percent to 1.8-percent target this year, Economic Planning Secretary Augusto Santos said Oct. 23.
Easing inflation allowed the central bank to slash its key interest rate by 2 percentage points from December to July to bolster growth as exports collapsed. Consumer prices rose 1.6 percent in October, the fastest pace in five months, the statistics office reported yesterday.
“As expected, the uptick was primarily due to supply pressures in agricultural products brought about by the recent typhoons,” central bank Gov. Amando Tetangco said yesterday. “We expect this to be largely temporary, with the underlying near-term trend remaining manageable,” he said in a mobile phone message.
The central bank said it needed to be “very careful” in setting monetary policy. Economic activity may boost “demand pressures,” the bank said. Utility prices and the El Niño weather phenomenon pose an “upside risk” to inflation estimates.
Crop losses due to recent storms won’t have a “long lasting” impact.
Bangko Sentral Deputy Gov. Diwa Guinigundo said the central bank was forecasting a higher inflation of 4.02 percent next year from an average of 3.28 percent this year. He said the central bank expected inflation to fall back to 3.4 percent in 2011.
The peso, near a six-week low, has declined 0.2 percent this year against the dollar, the worst performance among Asia’s 10 most-traded currencies excluding Japan’s, according to Bloomberg data.
The prospect that the central bank will keep interest rates low to support growth was keeping the peso “weak,” according to Marcelo Ayes, senior vice president at Rizal Commercial Banking Corp.
President Gloria Arroyo, whose term ends next year, has boosted spending to shield the economy from the worst global recession since the 1930s. Her government expects to post the biggest budget deficit this year since at least 1985, when Bloomberg data began. Bloomberg, Eileen A. Mencias
