Philippines May End Rate Increases as Focus Shifts to Growth

By Francisco Alcuaz Jr.

Oct. 6 (Bloomberg) -- The Philippine central bank may stop raising interest rates as it predicts inflation will ease, allowing policy makers to focus on spurring growth amid a global economic slowdown.

Bangko Sentral ng Pilipinas will keep the rate it pays banks for overnight deposits at 6 percent today, ending three increases totaling 1 percentage point since early June, according to seven of nine economists in a Bloomberg survey. Two expect the central bank to raise the benchmark to 6.25 percent.

Easing commodity prices have given Asia's central banks room to reduce borrowing costs, or keep them on hold, as the deepening U.S. financial crisis heightens risks to the region's export-dependent economies. The Philippine government on Oct. 2 cut its 2008 growth target to as little as 4.4 percent, compared with a 7.2 percent expansion last year.

``Everyone's past raising rates now,'' said Song Seng Wun, an economist at CIMB-GK Securities Pte in Singapore. Bangko Sentral ``may be wondering whether to join the line of central banks that have already cut rates, especially in an environment where credit markets are too stressed for the normal functioning of the economy.''

Global credit markets are being squeezed by banks afraid to lend to each other after the failure of Lehman Brothers Holdings Inc. and other financial companies in the U.S. and Europe, Asia's biggest export markets. Half of the world faces recession, Goldman Sachs Group Inc. said in August.

Rate Cuts

New Zealand's economy contracted in the three months to June, driving the nation into its first recession in 10 years. Japan's economy shrank at an annual 3 percent rate in the second quarter, the steepest drop since 2001, while the euro-area contracted 0.2 percent in the same period.

Taiwan, China, Australia and New Zealand cut borrowing costs in September. Inflation has slowed in Thailand and Sri Lanka and policy makers in India and Indonesia forecast price gains will cool before the end of the year.

Philippine inflation probably eased to 12.3 percent in September from a 16-year high of 12.5 percent the previous month, according to the median estimate of nine economists in a Bloomberg News survey. The government will release consumer- price data tomorrow.

``Inflation has peaked,'' Economic Planning Secretary Ralph Recto said Oct. 2. ``There's pressure for easing interest rates.''

Inflation may have stopped accelerating last month, the central bank's Deputy Governor Diwa Guinigundo said Sept. 12. Crude prices have declined more than a third from the record $147.27 on July 11, helping the Philippines, which imports almost all of its oil.

Focus on Growth

The government, which has cut its growth forecasts four times this year, has pledged to increase agriculture and infrastructure spending to bolster the economy, abandoning its target of balancing the budget in 2008.

Philippine growth may slow further to as little as 4.1 percent next year as cooling global economies hurt exports and remittances, the government said last week.

The following tables show economists' estimates for the overnight rate and for September inflation.

Philippines Overnight Borrowing Rate
---------------------------------------------
Policy Meeting           Oct.   Nov.    End
Dates                       6     20   2008
---------------------------------------------
Median                  6.00%  6.00%  6.00%
% forecasts at Median     78%    80%    60%
High                    6.25%  6.50%  6.50%
Low                     6.00%  6.00%  5.75%
Number of Estimates         9      5      5
---------------------------------------------
ATR-Kim Eng Capital     6.00%  6.00%  6.00%
BDO Unibank             6.25%  6.50%  6.50%
CIMB-GK Research        6.00%  6.00%  6.00%
Ideaglobal              6.00%  6.00%  6.00%
ING Groep NV            6.00%     --     --
Moody's Economy.com     6.25%     --     --
Reuters IFR             6.00%     --     --
Standard Chartered      6.00%  6.00%  5.75%
UBS                     6.00%     --     --
---------------------------------------------

Philippines Consumer Price Index
---------------------------------------------------------
                         CPI    CPI    End   Avg.   Avg.
Firm                      YoY    MoM     4Q   2008   2009
---------------------------------------------------------
Median                  12.3%  -0.1%  10.8%   9.7%   6.2%
Average                 12.3%  -0.1%  10.4%   9.6%   5.9%
High                    13.0%   0.5%  12.3%  10.0%   7.5%
Low                     11.3%  -0.9%   8.4%   8.9%   3.2%
Number of Estimates         9      6      5      6      5
---------------------------------------------------------
ATR-Kim Eng Capital     12.2%     --  11.0%  10.0%   6.0%
BDO Unibank             12.6%   0.5%  12.3%   9.5%   7.5%
CIMB-GK Research        12.3%   0.0%  10.8%   9.8%   6.5%
Ideaglobal              12.5%   0.1%     --  10.0%     --
ING Groep NV            12.1%  -0.2%     --     --     --
Moody's Economy.com     11.3%  -0.9%   8.4%   8.9%   6.2%
Reuters IFR             13.0%     --     --     --     --
Standard Chartered      12.1%  -0.2%   9.5%   9.3%   3.2%
UBS                     12.5%     --     --     --     --
---------------------------------------------------------

To contact the reporter on this story: Francisco Alcuaz Jr. in Manila at falcuaz@bloomberg.net