Teves says interest rates set to rise

ABS-CBN News

Posted at Jun 16 2008 01:28 PM | Updated as of Jun 16 2008 09:28 PM

Reuters

JEJU, South Korea - Interest rates in the Philippines are likely to rise on account of inflationary pressures, Finance Secretary Margarito Teves said on Monday.

Teves also said the government planned to increase spending to ease the supply of food in the economy, a move that could compromise fiscal discipline and possibly put the peso at risk.

"Interest rates are likely to go up because of the inflation rate," Teves told Reuters on the sidelines of an Asia-Europe finance ministers' meeting.

He refused to comment on how far the monetary tightening ought to go, but said he would advise the central bank to bear in mind the support the economy might need in order to grow.

"We still need to make sure the problem is caused not by supply but by demand.

"They (the central bank) have more information than we have. But I will make sure they are able to interact with the real sector as well," Teves said.

The Philippine central bank raised interest rates last week for the first time since 2005 to tackle inflation that is running at a nine-year high. The increase took the overnight borrowing rate to 5.25 percent and the overnight lending rate to 7.25 percent.

The economy is expected to grow just 5.7 to 6.5 percent this year against a 7.2 percent expansion last year, a 31-year high.

Teves declined to comment on the peso <PHP=>, which is trading around eight-month lows against the dollar, saying it was up to the central bank to decide currency policy.

"I don't intervene in that. I try to help by ensuring that we continue to exercise fiscal discipline, although it is not going to be easy at this time because there is need for additional spending."

The government has pushed back its goal of a balanced budget to 2010 from this year. It expects to post a 75 billion peso ($1.7 billion) deficit in 2008, equivalent to 1 percent of gross domestic product.

Teves said the government and state financial institutions would be spending more on programmes to boost food production and tackle other supply constraints. That raised the chances of the Philippines tapping foreign markets again for cash, he said.

The finance secretary had earlier said the Philippines may raise up to $750 million overseas.

"There is a greater probability, not certainty, that we will go back to the market for additional borrowing," he said.