Philippines Cuts Rate to 17-Year Low as Exports, Growth Falter

By Clarissa Batino and Karl Lester M. Yap

April 16 (Bloomberg) -- The Philippine central bank cut its benchmark interest rate to a 17-year low to prop up an economy battered by falling exports amid the global recession.

Bangko Sentral ng Pilipinas reduced the rate it pays lenders for overnight deposits a quarter of a percentage point to 4.5 percent, Governor Amando Tetangco said in a briefing today. The decision was expected by 10 of 12 economists in a Bloomberg News survey. The rate is the lowest since May 1992.

The government today trimmed its 2009 growth forecast to the slowest in eight years as shipments by manufacturers such as Texas Instruments Inc. tumble. Inflation has halved from a 16- year high of 12.4 percent in August, allowing the central bank to cut borrowing costs by a total 1.5 percentage points since mid-December.

“There’s a need to address growth first then keep policy nimble enough to address potential risks to price stability,” said Vishnu Varathan, an economist at Forecast Singapore Pte. “There’s potential for a greater pullback in growth. Exports have fallen phenomenally.”

Philippine economic growth may have slowed to a range of 2.1 percent to 3.1 percent in the first quarter, Economic Planning Undersecretary Augusto Santos said yesterday. That would be the weakest in more than seven years.

Exports in February shrank 39.1 percent from a year earlier, declining for a fifth month, the statistics office said in Manila today. Overseas sales, which make up about 38 percent of the economy, plunged a record 40.6 percent in January, according to Bloomberg data going back to 1981.

Economic Targets

Economic managers cut the 2009 gross domestic product growth target to a range of 3.1 percent to 4.1 percent from the previous estimate of 3.7 percent to 4.4 percent, Budget Undersecretary Laura Pascua said in Manila today.

The government also trimmed predictions for exports and widened the budget-deficit forecast to as much as 199.2 billion pesos ($4.2 billion) from the previous 177.2 billion-peso ceiling, she said. The state’s planned 2009 domestic debt sales will increase to 463.1 billion pesos to fund the shortfall, Finance Undersecretary Gil Beltran said.

Asian policy makers have unveiled stimulus packages worth more than $950 billion and lowered borrowing costs to revive growth as the global slump pushed Japan, Singapore and Taiwan into recession.

Neighboring Indonesia earlier this month reduced its benchmark interest rate to 7.5 percent and said it has scope to ease policy further. Thailand last week reduced borrowing costs to 1.25 percent, the lowest level since July 2004.

Lower borrowing costs are enabling SM Investments Corp., owner of the Philippines’ biggest retailer and largest lender by assets, and San Miguel Brewery Inc. to raise funds amid the global credit crunch.

To contact the reporter on this story: Clarissa Batino in Manila at cbatino@bloomberg.net.