PH conditions ripe for more rate cuts: Purisima

By Karen Lema and Jason Szep, Reuters

Posted at Feb 10 2012 03:14 PM | Updated as of Feb 10 2012 11:14 PM

* Says inflation to stay within 3% to 5% forecast range

* Government will hold non-deal roadshow in Europe

* 'Growth in 2012 should top 2011'

MANILA, Philippines - Inflation in the Philippines should stay manageable this year, allowing policymakers to cut interest rates further and boost economic growth in the face of uncertainty in the United States and Europe, Finance Secretary Cesar Purisima said on Friday.

Growth in the Philippines slowed significantly last year, hurt by weak state spending and sluggish exports to developed economies, and inflation is forecast to stay mild in 2012, building the case for further policy easing this year.

Purisima, who is a member of the central bank's policy-making Monetary Board, said inflation should stay within the central bank's forecast range of 3% to 5% this year with food and fuel prices expected to stay under control.

"I believe conditions are ripe for the consideration of additional cuts," Purisima told Reuters in an interview at his home in an upscale neighbourhood in Manila. "The BSP (Bangko Sentral ng Pilipinas) will have to make that decision."

"We would like to see higher growth rates especially in view of the fact that Europe is still uncertain and the U.S. is going through an election process," he said.

"So the role of the domestic economy will be very important in making sure we are able to create enough increase in economic activity."

The central bank cut its key policy rate for the first time in 2-1/2 years in January, lowering it by 25 basis points to 4.25%, and analysts said policymakers may deliver an earlier-than-expected rate cut on March 1 after annual inflation slowed to a 13-month low in January.

Manila has yet to announce its 2012 and 2013 inflation targets under the new base year, but central bank officials have said they would not be significantly different from the 3% to 5% target previously set for both years using 2000 prices.

The central bank expects average inflation of 3.1% in 2012 and 3.4% in 2013, both below economists' inflation forecasts of 3.7% and 4.2% for this year and next in a Reuters poll conducted in January.

Philippines is 'underrated'

Purisima said he will meet with credit rating agencies Fitch, Moody's Investor Service and Standard & Poor's, when the government embarks on a non-deal roadshow in Europe this month to drum up foreign investor interest.

"Europe is where Philippines news is least heard. It is to make sure they get the news directly from me," Purisima said.

He is expected to visit Frankfurt, London, Zurich and Geneva.

The country needs private funds to upgrade its creaking infrastructure as it aims to boost jobs and raise the long-term growth rate upwards to 7% to 8% to catch up with some of its faster growing Southeast Asian neighbors.

"We are not hoping for just one good year, we are hoping for sustained growth of higher levels. But to do so you need to address bottlenecks and in addressing bottlenecks you have to make sacrifices where you need to slowdown to correct things and that is what we are going through," Purisima said.

Purisima, an accountant by training, said the country deserved a credit rating upgrade given gains in both the economic and fiscal fronts.

"I believe we are underrated," he said. "If Indonesia is investment grade, we cannot be two notches below Indonesia."

Manila has been hoping for a credit rating upgrade after its neighbour Indonesia returned to investment-grade status late last year. An upgrade would lower the country's borrowing cost and widen its base of potential investors, as some funds have restrictions on holding sub-investment grade debt.

Standard & Poor's revised its rating outlook for the Philippines to positive from stable in December. A revision in ratings outlook is almost always followed by a ratings upgrade.

In June, Fitch Ratings had raised Philippines' credit rating to one notch below investment grade citing improving fiscal position and budget management.

Fiscal consolidation

The government remains committed to its medium-term fiscal consolidation programme despite plans to increase government spending this year, Purisima said.

The Southeast Asian economy wants to keep the budget deficit to 2.6% of GDP this year and lower it to 2% of GDP in 2013 and keep it at that level until the end of President Benigno Aquino's term in 2016.

Manila's tax administration reforms are gaining traction, Purisima said, with government revenues up 13% in 2011 from a year earlier, the highest growth rate in at least over a decade.

And that was achieved, he said, without new taxes and asset sales but purely from efficiency improvement.

Purisima said the government hoped to see at least two revenue enhancement measures -- simplifying an existing tax on alcohol and tobacco, and the rationalisation of fiscal incentives -- both certified by Aquino as urgent to be approved by Congress to further beef up revenues.