BSP likely to keep interest rates low in 2013


Posted at Jan 03 2013 06:06 PM | Updated as of Jan 04 2013 02:06 AM

MANILA - The Philippine central bank will likely keep interest rates low this year and growth should remain on a solid footing, aided by strong domestic consumption and higher government spending, Governor Amando Tetangco said on Thursday.

Any adjustment to interest rates would depend on the outlook for inflation and the economy's performance, Tetangco said.

"Businesses could expect BSP (the central bank) to keep interest rates at the low level in 2013," Tetangco told a business forum.

"In 2013, we foresee continued solid economic growth and stable prices, a relatively stable exchange rate and a responsive banking system that is stable to withstand external shocks," he said.

The central bank cut its key policy rate by a total 100 basis points last year to a record low 3.5 percent. It said monetary policy was designed to boost economic growth and to manage strong capital inflows. During 2012, the peso was emerging Asia's second best performing currency after the South Korean won.

Foreign investors have been attracted to the Philippines, due to strong domestic demand and higher state spending that have keep the Southeast Asian economy resilient despite slowdowns in key export markets in China, Europe and the United States.

Manila reported the second strongest annual economic growth in Asia of 7.1 percent in the third quarter, making it likely that growth in 2012 will surpass the government's 5 to 6 percent target.

In the third quarter of 2012, the Philippines had annual economic growth of 7.1 percent, the second fastest pace in Asia after China. The rapid pace makes it likely that growth for all of 2012 will surpass the Philippine government's 5 to 6 percent target.

Tetangco said policymakers will continue to watch global developments to assess their impact on domestic growth and inflation.

"We will sharpen our economic surveillance of shifts in domestic and global dynamics, including any brewing asset price pressures," Tetangco said.

The central bank meets on Jan. 24 to review policy.

Tetangco reiterated the central bank will keep a market determined-exchange rate, adding that the peso has been moving in step with other regional currencies.

The central bank will maintain a market-determined exchange rate and comfortable level of reserves while continuing to keep external debt at sustainable levels, the governor said.