Philippines, Ahead of Inflation Fight, Touts Policy Tools ...

June 12, 2011, 3:27 AM EDT

By Joel Guinto and Clarissa Batino

(Updates with Tetangco comments from fourth paragraph.)

June 12 (Bloomberg) ? The Philippines will consider all policy tools, including interest rates and reserve requirements, to keep a tight rein on inflation, the heads of the nation?s finance department and central bank said today.

?The strategy is to make sure we?re always ahead of the curve in dealing with inflation,? Finance Secretary Cesar Purisima said in Manila.

Bangko Sentral ng Pilipinas raised its benchmark overnight borrowing rate by a quarter of a percentage point at both its March and May meetings, to 4.5 percent. Annual inflation reached 4.5 percent last month, the fastest pace in 13 months. Eight of 15 economists in a Bloomberg survey predict the central bank will raise the rate to 4.75 percent on June 16, while the rest expect no change.

?We have a number of instruments in our policy toolkit ? policy rate, reserve requirement, macro-prudential measures ? and we will consider all these? at the June 16 meeting, central bank Governor Amando Tetangco told reporters today during celebrations to mark the Philippines? 113th year of independence.

?We will evaluate based on the assessment of the inflation outlook and changes in inflation expectations as well as the amount of liquidity in the system,? Tetangco said. Money-supply growth slowed in April as government spending fell last quarter, he said.

Supportive of Growth

Bangko Sentral?s monetary policy will remain supportive of economic growth, Tetangco said. Banks are required to set aside 19 percent of their deposits as reserves, a ratio the central bank reduced from 21 percent in November 2008 to counter the effects of the global financial crisis.

The central bank is currently ?not looking at? extending the tenors of its special deposit accounts, Tetangco said. There is more than 1 trillion pesos ($23.1 billion) deposited in the central bank? special accounts, a facility that authorities have used to mop up surplus cash in markets.

The $161 billion Asian economy will ?comfortably? expand by about 5 percent this year, while a target of 7 percent to 8 percent growth starting in 2011 remains ?aspirational,? Purisima told reporters today.

Gross domestic product increased 4.9 percent from a year earlier in the first quarter. This year?s growth target may be reviewed after the second-quarter data is released, Economic Planning Secretary Cayetano Paderanga said at the same event in Manila.

The government will pursue a planned bond exchange depending on market conditions, and is confident of capping the 2011 budget deficit within 3.2 percent of GDP, Purisima, who sits on the central bank?s Monetary Board, said.

?So far, we?ve done a good job,? he said. ?Inflation is still within the upper limits of our policy range. The situation right now is well-managed? by the central bank, he said.

Inflation in the Philippines has been ?primarily driven? by higher oil costs, Purisima said. The government will boost spending to help spur growth, he said.

?Editors: Jim McDonald, Andrew Janes

%PHP

To contact the reporter on this story: Joel Guinto in Manila at jguinto1@bloomberg.net Clarissa Batino in Manila at cbatino@bloomberg.net

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net

Source: http://g7finance.com/global-news/philippines-ahead-of-inflation-fight-touts-policy-tools/

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