Philippines May Cut Key Rate to 17-Year Low as Exports Collapse

By Clarissa Batino and Michael J. Munoz

April 16 (Bloomberg) -- The Philippine central bank may 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 will lower the rate it pays lenders for overnight deposits a quarter of a percentage point to 4.5 percent, according to 10 of 12 economists in a Bloomberg News survey. One expects a half-point cut and the other predicts no change. The decision is due after 4 p.m. in Manila today.

Government officials meeting today may trim the 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 in the past three meetings.

“The central bank will continue to ease and probably step up the rate cuts by mid-year once inflation has dropped significantly,” said Simon Wong, an economist at Standard Chartered Plc in Hong Kong. “With trade collapsing and remittances expected to turn negative soon, the economy is headed for a sharp slowdown in 2009.”

Exports in February shrank 38.5 percent from a year earlier, declining for a fifth month, according to the median estimate of 10 economists in a Bloomberg News survey. 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. The statistics office will release the data at 9 a.m.

Remittances, or funds sent home by Filipinos working overseas, may not grow this year, the central bank has said. The inflows are equivalent to more than 10 percent of the $144 billion economy.

Economic Targets

Economic managers may cut the 2009 gross domestic product growth target to a range of 3.1 percent to 4.1 percent from the current estimate of 3.7 percent to 4.4 percent when they meet today, Economic Planning Director Dennis Arroyo said April 14.

The government may also trim predictions for exports and widen the budget-deficit forecast from the current 177.2 billion-peso ($3.7 billion) ceiling, Arroyo said. The budget shortfall may reach a record 250 billion pesos this year on higher state spending, Economic Planning Secretary Ralph Recto said yesterday.

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.

Flexibility

The Philippine central bank “has some flexibility in its monetary policy to ensure that financial markets function efficiently so as to create an environment where economic growth is not derailed,” Governor Amando Tetangco said this month.

Lower borrowing costs is enabling SM Investments Corp., owner of the nation’s biggest retailer and largest lender by assets, and San Miguel Brewery Inc. to raise funds amid the global credit crunch that escalated last year after Lehman Brothers Holdings Inc. filed for bankruptcy.

Bangko Sentral has cut its key rate by 1.25 percentage points since mid-December to 4.75 percent. A reduction to 4.5 percent would be the lowest since 4.125 percent in May 1992, according to central bank data.

The following are economists’ estimates for the central bank’s overnight borrowing rate and February exports:

Philippines Overnight Borrowing Rate
-------------------------------------------
Policy Meeting          April    May    End
Dates                      16     28   2009
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Median                  4.50%  4.25%  4.00%
% forecasts at Median     83%    67%    57%
High                    4.75%  4.50%  4.25%
Low                     4.25%  4.00%  3.00%
Number of Estimates        12      6      7
-------------------------------------------
Action Economics        4.50%  4.25%  4.25%
Barclays Capital        4.50%  4.25%  4.00%
BDO Unibank             4.75%  4.50%  4.00%
Citi                    4.50%     --     --
Credit Suisse           4.50%     --     --
DBS Group               4.50%  4.25%  4.00%
Forecast Singapore      4.50%     --     --
HSBC                    4.50%     --  4.25%
ING Groep NV            4.50%     --     --
Moody’s Economy.com     4.50%  4.25%  4.00%
Nomura Securities       4.25%     --     --
Standard Chartered      4.50%  4.00%  3.00%
-------------------------------------------

Philippines February Exports Forecasts
-------------------------------------------
Median                               -38.5%
Average                              -37.5%
High                                 -25.0%
Low                                  -45.0%
Number of Estimates                      10
-------------------------------------------
Action Economics                     -39.0%
Barclays Capital                     -35.0%
Citi                                 -43.5%
DBS Group                            -40.0%
Forecast Singapore                   -41.3%
HSBC                                 -32.0%
ING Groep NV                         -38.0%
Nomura Securities                    -45.0%
Standard Chartered                   -36.0%
UBS                                  -25.0%
-------------------------------------------

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