Philippine Rates Can Rise Further, Guinigundo Says

By Nipa Piboontanasawat and Clarissa Batino

June 27 (Bloomberg) -- The Philippine central bank has scope to raise interest rates further without endangering economic expansion, Deputy Governor Diwa Guinigundo said.

Bangko Sentral ng Pilipinas ``is prepared to undertake whatever is necessary to make sure inflation expectations can be anchored,'' Guinigundo said in an interview in Rome today. ``We don't expect an increase in interest rates to have a significant impact on economic growth.''

The Philippines this month raised its benchmark rate for the first time since October 2005 after record oil and rice costs pushed inflation to a nine-year high of 9.6 percent in May. The Southeast Asian nation may have to join neighbors Indonesia and Vietnam in increasing borrowing costs more than once this year as prices soar.


``With the continuing risk of rising prices, there might be a need to do another quarter-point increase,'' said Jonathan Ravelas, an economist at Banco de Oro Unibank in Manila. ``It has to be a measured response because raising too much could also hurt the economy.''

Price gains may accelerate to 10.3 percent this month from a year earlier, Ravelas estimates.

Inflation may peak in the third quarter before easing to an average of 7 percent to 9 percent this year, Guinigundo reiterated today. It may slow to 4 percent to 6 percent in 2009, he said.

``Inflation continues to be broadly anchored to the central bank's inflation forecast,'' Guinigundo said. The central bank is ``broadly'' comfortable with the current interest rate level, he added.

Typhoon Fengshen

Philippine policy makers next meet to review rates on July 17. Bangko Sentral increased the rate it pays banks for overnight deposits by 25 basis points to 5.25 percent on June 5.

Still, slowing growth may stay the central bank's hand, said Song Seng-Wun, an economist at CIMB-GK Securities Pte in Singapore. Weather disruptions may affect farm output and drag growth down to as low as 4.6 percent this year, Song said.

Typhoon Fengshen, which slammed into the central and southern Philippines last weekend, may have damaged at least 4.8 billion pesos ($107 million) worth of crops and fishery products and sugar output may fall, the agriculture department said this week.

``The Philippines appears to be posting more risks to growth'' said Song. ``Against that backdrop, it warrants a no- change in rates to give the economy some breathing space.''

The Philippine government expects economic growth of 5.7 percent to 6.5 percent this year, easing from 7.2 percent in 2007, which was the fastest annual pace in 31 years. The International Monetary Fund expects expansion in the $118 billion economy to slow to 5.2 percent in 2008.

To contact the reporter on this story: Nipa Piboontanasawat in Rome at npiboontanas@bloomberg.net; Clarissa Batino in Manila at cbatino@bloomberg.net.