Philippine central bank keeps rate steady and is prepared for volatility

MANILA: The Philippine central bank has kept its benchmark interest rate steady, as expected, and said it was prepared to act to contain any market volatility that might stem from Britain’s vote on whether to exit the European Union.

The policy-making Monetary Board held the main rate at 3%, the level set by the central bank after it established an interest rate corridor (IRC) on June 3, on rosier prospects for growth this year as President-elect Rodrigo Duterte has pledged to ramp up infrastructure spending.

“Higher fiscal spending is expected to fur- ther boost domestic demand,” said deputy governor Nestor Espenilla, officer-in-charge at the Bangko Sentral ng Pilipinas.

The BSP lowered its forecast for average inflation in 2016 to 2% from 2.1%, due to manageable wage increases. It kept the 2017 forecast at 3.1%.

The central bank also projected 2018 inflation at 2.6%. All estimates are inside its targets of 2%-4% for 2016-2018.

Before the interest rate corridor was launched, the key overnight borrowing rate was 4%.

Policy-makers fixed the corridor’s width at 100 basis points, so the ceiling now is 3.5% and the floor 2.5%.

Central bank deputy governor Diwa Guinigundo said the monetary authority was prepared to act, if needed, to contain any fallout from the British referendum, but was quick to add the Philippines has sufficient buffers against external shocks.

“The BSP is prepared to undertake whatever action is necessary should there be a negative impact of whatever happens in Britain,” Guinigundo told reporters.

Duterte, who won the May 9 election on a single-issue platform of fighting corruption and criminality, will assume office on June 30.

Investors have been uncertain about his ability to manage one of Asia’s fastest-growing economies.

However, jitters may have been eased by assurances from his technocrats on Monday that robust growth will be sustained by higher government spending on infrastructure, especially in neglected rural areas.

“We anticipate that higher consumers’ incomes and purchasing power and higher government spending would keep growth at above 6% in 2017,” said Jose Mario Cuyegkeng, economist at ING bank in Manila. — Reuters