Duterte and inflation worry for Moody’s

manila — The Philippines kept its investment-grade rating at Moody’s Investors Service, but not without a caution about threats posed by elevated inflation and political risks, including a potential shift to a federal form of government.

Moody’s kept a stable outlook on its Baa2 rating on Philippine debt, saying it expects economic growth to remain robust and that some fiscal numbers will improve. Still, these gains are unlikely to bring the nation’s credit profile in line with higher-rated countries, it said.

“At the same time, policymakers face challenges in managing the current inflationary pressures,” it said in a statement on Friday. “In addition, domestic political developments and prospective changes to governance frameworks, including a shift to a federal form of government, present downside risks to the country’s institutional and fiscal profile.”

Higher oil and rice prices and a peso near a 12-year low pushed Philippine inflation to 5.2 per cent in June, the fastest pace in at least five years. It looks like two successive 25 basis point interest-rate increases were unable to contain the price pressures, with the Department of Finance predicting the inflation rate will quicken to 5.3 per cent this month.

President Rodrigo Duterte will ask Congress on Monday to support his plan to change the constitution and shift to a US style federal structure that will create 18 regions. Critics of the plan by the 73-year-old leader, including former Supreme Court Chief Justice Hilario Davide, said that changing the charter could allow Duterte to extend his reign beyond 2022.