By Karl Lester M. Yap
Aug. 27 (Bloomberg) -- The Philippine central bank may raise interest rates for a third month to temper inflation that is hindering the nation's economic expansion.
Bangko Sentral ng Pilipinas will tomorrow increase its benchmark interest rate by 0.25 percentage point to 6 percent, according to 13 of 15 economists surveyed by Bloomberg News. Two predict a half-point jump to 6.25 percent.
Gross domestic product growth probably slowed last quarter as inflation approaching a 16-year high hurt consumer spending. Asian countries from Vietnam to India have raised borrowing costs this year as surging commodity costs fueled price gains.
``Recent inflation numbers are high and inflation is still rising,'' said Jonathan Ravelas, a strategist at Manila-based Banco de Oro Unibank Inc. ``Maintaining price stability is more important for the central bank.''
The economy grew 5 percent in the second quarter from a year earlier, according to the median estimate of 13 economists surveyed by Bloomberg News, compared with 5.2 percent in the previous three months. The government will release the growth data tomorrow.
Record oil and rice prices have hurt Philippine consumer spending, which makes up 70 percent of the economy.
``Going forward, there is a real risk that inflation expectations will become unanchored,'' said Vishnu Varathan, a regional economist at Forecast Singapore Pte. ``It is crucial to raise rates even if we see commodity prices are falling.''
Crude oil in New York has fallen about a fifth from a record $147.27 a barrel on July 11.
Tight Policy
Bangko Sentral Governor Amando Tetangco said Aug. 5 the bank will maintain a ``tight'' monetary policy after a report showed inflation accelerated to 12.2 percent last month. The central bank in July raised its inflation forecast for this year to a range of 9 percent to 11 percent, from a previous estimate of 7 percent to 9 percent.
The government last week lowered its 2008 growth target for a second time this year to between 5.5 percent and 6.4 percent. The economy grew 7.2 percent in 2007.
Rising borrowing costs and record commodity prices are sapping growth in the world's largest economies, damping demand from the U.S., Japan, and Europe for Philippine-made Intel Corp. computer chips and The Gap Inc. clothing.
Growth in exports, which account for two-fifths of the Philippines' $118 billion economy, may slow to 5 percent this year, the weakest since 2005, the government said in July.
Remittances
Philippine remittances from the tenth of the population that works abroad, equivalent to about 10 percent of the Southeast Asian economy, may also falter after jumping to a record $1.45 billion in June.
Slowing global growth may limit overseas jobs as companies lay off workers and freeze expansion. Half of the Philippines' remittances come from the U.S., where leading indicators last week showed a slowdown will deepen in the second half of 2008.
President Gloria Arroyo in May pledged to boost investment and increase spending on subsidies to help Filipinos cope with soaring prices, abandoning her plan to balance the budget this year in favor of spurring growth.
The following tables show economists' forecasts for Philippine economic growth and the central bank's benchmark interest rate:
Philippine GDP Growth Estimates
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2Q 2Q 3Q 4Q GDP GDP
Firm YoY QoQ SA YoY YoY 2008 2009
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Median 5.0% 1.6% 5.7% 5.7% 5.4% 5.5%
Average 4.9% 1.6% 5.6% 5.4% 5.3% 5.5%
High 5.6% 2.5% 6.3% 6.3% 5.6% 6.1%
Low 4.0% 0.9% 4.8% 3.6% 4.7% 4.4%
Number of Estimates 13 7 5 5 7 5
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Action Economics 5.5% 2.3% 5.7% 5.7% 5.5% 5.5%
BDO Unibank 5.3% 0.9% 5.3% 5.5% 5.5% 6.0%
Citi 4.8% -- -- -- 5.1% --
DBS Group 4.5% -- -- -- -- --
Forecast Singapore 5.0% -- -- -- -- --
HSBC 5.0% 1.9% 4.8% 3.6% 4.7% 4.4%
Ideaglobal 5.4% -- -- -- 5.4% --
ING Groep NV 4.7% 2.5% -- -- -- --
Lehman Brothers 4.5% 1.6% -- -- -- --
Moody's Economy.com 5.1% -- 5.7% 6.3% 5.6% 6.1%
Standard Chartered 4.0% 1.0% -- -- -- --
Reuters IFR 4.1% 1.2% 6.3% 6.0% 5.4% 5.5%
UBS 5.6% -- -- -- -- --
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Philippines Overnight Borrowing Rate Estimates
----------------------------------------------------
Policy Meeting Aug. Oct. Nov End
Dates 28 9 20 2008
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Median 6.00% 6.25% 6.38% 6.25%
% forecasts at Median 87% 67% 0% 43%
High 6.25% 6.50% 6.50% 6.50%
Low 6.00% 6.00% 6.00% 6.00%
Number of Estimates 15 6 6 7
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Action Economics 6.00% 6.25% 6.25% 6.25%
BDO Unibank 6.00% 6.25% 6.50% 6.50%
Capital Economics 6.25% -- -- --
Citi 6.00% -- -- --
Credit Suisse 6.00% 6.25% 6.50% 6.50%
DBS Group 6.00% -- -- --
Forecast Singapore 6.00% -- -- --
HSBC 6.00% 6.00% 6.00% 6.00%
Ideaglobal 6.00% -- -- 6.25%
ING Groep NV 6.00% -- -- --
Lehman Brothers 6.00% -- -- --
Moody's Economy.com 6.25% 6.50% 6.50% 6.50%
Standard Chartered 6.00% -- -- --
Reuters IFR 6.00% 6.25% 6.25% 6.25%
UBS 6.00% -- -- --
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To contact the reporter on this story: Karl Lester M. Yap in Manila at o kyap5@bloomberg.net.
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