By Francisco Alcuaz Jr. and Clarissa Batino
Dec. 18 (Bloomberg) -- The Philippine central bank may cut its benchmark interest rate for the first time since January to boost economic growth amid a global recession.
Bangko Sentral ng Pilipinas will reduce the rate it pays banks for overnight deposits to 5.75 percent from 6 percent today, according to six of 13 economists in a Bloomberg News survey. Four predict the bank will cut the benchmark to 5.5 percent, one expects a reduction to 5.25 percent, and two expect the rate to be left unchanged.
The central bank has refrained from lowering borrowing costs even as inflation began to slow in September, on concern the peso’s drop to a two-year low last month may stoke prices anew by making imports more expensive. The currency has recovered more than 5 percent since then, giving the Philippines room to join the U.S. in cutting interest rates this week.
“Now is a good time to cut rates while the peso is strong,” said Rafael Algarra, treasurer at Security Banking Corp. in Manila. “A 25 basis-point cut sends a signal to the market, which needs to know that the cycle has started.”
The peso has gained as the 8 million Filipinos overseas sent more money home for the year-end holidays. Remittances, which amount to about a tenth of the $144 billion economy, peaked in December in four of the last five years.
Policy makers from the U.K. to India have cut interest rates in recent months as a global credit crunch pushed the U.S., Europe and Japan into a recession, and slowing demand caused commodity prices to fall from records reached earlier this year.
Eight-Year Low
The U.S. Federal Reserve cut the country’s main interest rate to as low as zero for the first time and said it would “employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability.”
The Philippine government says economic growth may dwindle to as little as 3.7 percent next year, the slowest pace in eight years. Inflation slowed to 9.9 percent last month from a 16-year high of 12.5 percent in August after rice and oil prices fell.
“Given the space offered to us by lower commodity prices, better inflation and outlook, an easing bias defines our direction in the future,” the central bank’s Deputy Governor Diwa Guinigundo said this week. Still, the bank “can’t be indifferent” to the inflationary risks of “excessive” easing and a weaker peso, he said.
The peso weakened to 50.19 a dollar on Nov. 21 as the global recession and financial crunch prompted investors to sell emerging-market assets for safer assets including U.S. Treasuries. It’s headed for its first decline in four years and its biggest drop since 2000.
The central bank raised its key interest rate by 1 percentage point in three successive meetings from June to August and held it steady at the following two meetings. It holds its last rate-setting meeting for 2008 today and is expected to announce the decision after 4 p.m.
Table of forecasts:
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Policy Meeting Dec. Jan. Mar.
Dates 18 29 5
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Median 5.75% 5.38% 5.00%
% forecasts at Median 46% 0% 50%
High 6.00% 5.75% 5.75%
Low 5.25% 4.75% 4.25%
Number of Estimates 13 6 6
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Action Economics 5.75% 5.50% 5.00%
ATR-Kim Eng Capital 5.75% 5.25% 5.00%
BDO Unibank 6.00% 5.75% 5.75%
Capital Economics 5.50% -- --
Citi 6.00% -- --
Credit Suisse 5.50% -- --
DBS Group 5.75% 5.50% 5.25%
HSBC 5.75% -- --
Ideaglobal 5.50% -- --
Nomura International 5.75% -- --
Royal Bank of Scotland 5.75% -- --
Standard Chartered 5.50% 5.25% 5.00%
Westpac Banking 5.25% 4.75% 4.25%
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To contact the reporters on this story: Francisco Alcuaz Jr. in Manila at falcuaz@bloomberg.net; Clarissa Batino in Manila at cbatino@bloomberg.net.
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