Philippine Central Bank sees less need to support growth

MANILA: Export growth and higher state spending mean the Philippine central bank has less need to support the economy, its governor said, allowing monetary authorities to hold interest rates as they guard against inflation risks.

The two factors are expected to power domestic growth this year to the government's target of 5-6 percent, against last year's lower-than-expected 3.7 percent growth.

"Now we are seeing a pick-up in exports, and some moves towards the resolution of the crisis in Europe, and therefore the need to support growth is less," Tetangco said on the sidelines of the Asian Development Bank's annual meeting in Manila.

"At the moment, there is maybe no need to tweak policy settings."

The central bank next reviews base interest rates — currently at an all-time low of 4.0 percent following two cuts totaling 50 basis points in January and March — on June 14.

Exports, accounting for about two-fifths of the country's economic output in expenditure terms, grew 14.6 percent year on

year in February, their fastest rate in 10 months as demand from the country's major trading partners, including the US, picked up pace.

There were no significant inflationary pressures at present, Tetangco said, brushing off data showing the rate of consumer

price rises quickened in April for the first time in six months.

Any changes to the central bank's inflation forecast for this year of 3.1 percent would likely be minimal, he said.

Economic problems in the euro zone remained the biggest challenge to domestic growth, and the central bank was watching how the crisis there would tilt global commodity prices and capital flows and thus affect inflation.

"In our most recent assessment, although inflation over the policy horizon is within target, the balance of risks to inflation has somewhat tilted to the upside," Tetangco said.

The government has set an inflation target of 3-5 percent this year and next.

April's annual inflation rate of 3.0 percent was at the top end of the central bank's forecast range and was higher than market forecasts.

Tetangco said the central bank was looking to tighten rules on its short-term special deposit account (SDA) window, which

has been hovering at a record high of 1.7 trillion pesos ($40 billion), to prevent abuse as investors look for better investment yields.

In particular, the central bank was studying if non-residents were able to gain access to higher rates offered under the facility via trust accounts with banks. Non-residents are not allowed to have placements in SDAS.

"What we want to do is to make sure that the regulation is complied with," Tetangco said.

The SDA pays a rate of 4.06 percent to 4.18 percent for placements ranging from seven days to 31 days with the central bank, higher than its overnight borrowing rate of 4.0 percent.

The SDA rate is also higher than the benchmark 91-day Treasury bill rate currently at below 3 percent.