Philippine central bank keeps easing options open

MANILA (Reuters) - The Philippine's economy does not need more stimulus for now as domestic demand remained buoyant despite the global slowdown dampening exports, but the central bank can ease policy if needed later this year, its governor said on Wednesday.

Any adjustment to interest rates would depend whether the risk of inflation accelerating or risk of economic growth falling was greater, Governor Amando Tetangco told Reuters.

"Right now the balance of risks is broadly even," Tetangco said in an interview at his office in Manila.

The Philippines has shown resilience amid the global downturn that has slowed growth in China and other emerging market economies in the region.

Having posted one of the highest growth rates in Southeast Asia in the second quarter, there was evidence that the Philippines could sustain growth in the second half of 2012.

The Philippines' GDP expanded an average 6.1 percent in the first six months, and policymakers are optimistic growth will hit the higher end of a 5 to 6 percent target for this year, accelerating from last year's 3.9-percent expansion, despite weakening exports of electronics, the main export earner.

"The policy stimulus currently in place is sufficient to provide support to domestic economic activity amid the ongoing weaknesses globally," Tetangco told Reuters in an interview at his office in Manila.

"I'm not going to rule out possible further easing during the rest of the year, but that will depend on our assessment...of the stance of policy relative to the inflation target, which is our primary mandate, and relative to economic growth," he said.

The Bangko Sentral ng Pilipinas, which next meets on Oct 25 to review policy, has kept its overnight borrowing rate at a record low of 3.75 percent following three cuts totaling 75 basis points this year aimed at shielding the economy against external shocks.

STATE SPENDING

Capacity utilization in the manufacturing sector was above 80 percent, and energy sales, an indicator of economic activity, was on the rise.

Accelerated government spending in the second half, and more efficient spending brought about by budget reforms would help sustain growth, Tetangco said.

"We expect to get more bang from each peso spent," he said.

Data released earlier on Wednesday showed government spending rose 10.4 percent in August from a year earlier, although it was down 22 percent from July.

Economists say there is scope to ease policy further to dampen rapid peso appreciation and curtail speculative inflows.

Having gained 5 percent against U.S. dollar so far this year, the Philippine peso is the second best performing currency among emerging Asian economies, only bettered by the Singapore dollar.

Sound macroeconomic fundamentals and the prospect of being rewarded with an investment grade credit rating in coming months have drawn investors, flush with cash thanks to easier monetary policies adopted in developed economies.

While a strong currency offers protection against the inflationary effects of higher prices of imports, it could also crimp growth as it makes the country's exports more expensive and reduces the buying power of foreign currency remittances from Filipinos working overseas.

Domestic consumption, which accounts for 70 percent of GDP, is driven by remittances, which average $1.7 billion a month.

Tetangco said higher oil and food prices in the world market were upside risks to inflation, but these risks were moderated by the weak global economic outlook.

While policymakers were closely watching asset prices particularly in the property market, a bright spot in the economy driven largely by a growing offshoring and outsourcing industry, there were no signs of asset bubbles yet.

"We continue to believe there is limited evidence of stretched valuations in the real estate market," Tetangco said.

(Editing by Simon Cameron-Moore)

Source: http://news.yahoo.com/philippine-central-bank-keeps-easing-options-open-104238340--business.html

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