The Philippines won a second rating upgrade from Moody’s Investors Service in just over a year, even as the central bank highlighted growth risks in refraining from raising interest rates on Thursday.
Moody’s raised the Philippines’s sovereign rating to Baa2 from Baa3 and said the outlook is stable. Bangko Sentral ng Pilipinas (BSP) kept the rate it pays lenders for overnight deposits at 4%, as predicted by all 17 economists in a Bloomberg News survey.
The Philippines stands to benefit from a prolonged period of lower oil prices and has favourable prospects for strong economic growth, Moody’s said. The central bank cut its estimates for inflation through 2016, while saying global conditions remain challenging.
“BSP will probably stay put unless inflation picks up,” said Marc Bautista, head of research at Metropolitan Bank & Trust Co in Manila. “There’s a general sense of a slowdown globally,” he said, adding that the ratings upgrade is a reflection of the view that the country’s economic growth will rebound in the fourth quarter.
The peso rose the most in a month after the Moody’s upgrade, and closed 0.4% higher at 44.493 against the dollar. Peso one-month forwards climbed 0.5%, the most since Aug 14, while the yield on 8% government bonds due July 2031 fell five basis points to 4.085%.
The Philippine central bank held the rate on special deposit accounts and the reserve requirement ratio. It cut its forecast for inflation this year to 4.2% from 4.4%, and to 3% from 3.7% for 2015. It also lowered its 2016 estimate to 2.6% from 2.8%.
Consumer prices rose 3.7% in November from a year earlier, the slowest pace in 12 months. The economy expanded 5.3% last quarter from a year earlier, the weakest since 2011, with the International Monetary Fund predicting growth of about 6% every year at least through 2019.
“Our efforts to maintain macroeconomic stability made the economy more resilient in the face of challenges essentially coming from the external sector,” central bank governor Amando Tetangco told reporters. The monetary authority is prepared to take appropriate measures as needed, he said.
Inflation continues to be “manageable” and risks to the price-gains outlook is broadly balanced, Tetangco said. Risks include potential power shortages and tariff increases, he said.
Moody’s last upgraded the Philippines in Oct 2013. Bangko Sentral raised its key rate in July for the first time since 2011, and has increased the rate on SDAs and the RRR twice this year.
“The sustained decline of energy prices is providing space for the central bank to pause in its own tightening cycle,” economists Eugenia Victorino and Glenn Maguire at Australia and New Zealand Banking Group Ltd. said in a note. It may resume “gradual tightening” in the second half of 2015, they said.