(Bloomberg) -- Philippine economic growth quickened to 6.8 percent last quarter as government spending surged, adding pressure on the central bank to raise interest rates to curb inflation. The peso and stocks rose.
President Rodrigo Duterte is boosting spending to a record to sustain one of the world’s fastest-growing economies. Projects include bridges and a subway to help ease traffic in the capital, another international airport north of Manila and railways to the provinces.
The booming economy has fueled concern of overheating and with inflation at a five-year high, the era of record-low interest rates may be approaching its end. The central bank is forecast by a majority of economists to raise the policy rate by 25 basis points from 3 percent on Thursday.
“The central bank will hike rates,” said Euben Paracuelles, an economist at Nomura Holdings Inc. in Singapore. “Growth momentum has been retained at a decent pace and is still supportive of a rate hike.”
The peso gained 0.3 percent to 51.86 per dollar as of 11:57 a.m. in Manila. The benchmark stock index climbed 0.7 percent.
Central banks in emerging markets are facing their toughest challenge since the 2013 “taper tantrum” as the contagion from higher U.S. interest rates spreads. Argentina’s central bank raised rates three times to stem a sell-off in its currency while in Asia, Indonesia’s central bank is also facing pressure to act.
In the Philippines, Governor Nestor Espenilla has been preparing the market for policy tightening. He said late on Wednesday that policy makers will ensure inflation is well-managed.
“We confront again this question and decide what we need to do to be able to uphold that promise and commitment to the nation,” he said in a speech.
What Our Economists Say...A rate hike is already anticipated by the money market. What’s more, the peso has stabilized in part on the basis of rate hike expectations -- gaining ground against the U.S. dollar when Asian peers fell. Failure to follow through with a hike today could trigger another sharp slide in the currency.
-- Tamara Henderson, Bloomberg Economics
Click to read how the Philippines is next emerging market to raise rates
Other GDP Details
- Government spending gained 13.6 percent from a year earlier, the fastest pace since 2016
- Consumer spending growth eased to 5.6 percent
- Capital formation increased 12.5 percent, while exports rose 6.2 percent
Click here to see a table of GDP component breakdown by expenditure, here for breakdown by industry
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