Fed action affirms Philippine policy - central bank


Posted at Aug 11 2010 12:49 PM | Updated as of Aug 11 2010 08:49 PM

MANILA, Philippines The US Federal Reserve's policy stance supported the Philippine central bank's decision to hold interest rates at a record low and will allow it to tap cheaper funds overseas, the central bank governor said on Wednesday.

"For the BSP (Bangko Sentral ng Pilipinas), the Fed's move confirms our assessment of manageable inflation, and therefore gives us flexibility to continue to be supportive of the government's growth objective," Amando Tetangco said in a mobile text message to reporters.

The Fed on Tuesday left its benchmark overnight interest rates steady in a zero to 0.25%  range and renewed its pledge to keep them low for an extended period. It said it would reinvest maturing mortgage debt into Treasuries. 

A favourable inflation environment has allowed the Philippine central bank to keep its key policy rate at a record low of 4 percent since July 2009.

It has twice cut its inflation forecasts for 2010 and 2011 as price pressures eased. The central bank's next policy meeting is on Aug. 26. 

Low Fed rates would also help the Philippines, Asia's largest sovereign issuer of foreign currency debt, access cheaper funds abroad to finance a huge budget deficit this year, Tetangco said.

Manila, which expects a budget deficit of P325 billion pesos ($7.2 billion) or 3.9%  of GDP this year, a record in nominal terms, plans to raise at least $500 million from a global peso bond issue in the second half of the year.

"The Fed's announcements should give the government room to raise funds from the international capital market at relatively lower cost, which could then provide a more stable base for the country as the national government goes goes full swing with its PPP (public-private partnerships) initiative," Tetangco said.

President Benigno Aquino III, who took office nearly 6 weeks ago, has vowed to make the Philippines more business friendly and encourage public-private partnerships in major infrastructure projects.