Earlier this month the Philippines was finally awarded an investment grade rating from Moody’s, a leading credit ratings agency. It now means that the country is ranked as investment grade by three of the world’s major ratings agencies, with the latest move by Moody’s following in the footsteps of Fitch Ratings and Standard and Poor’s earlier in the year. Moody’s decision to upgrade was influenced by the country’s robust growth performance as well as the positive progress made on fiscal and debt consolidation. Moreover, the stable political environment and good governance also played a role. Even as growth in the rest of the region took a hit from the downturn in global demand, the Philippine economy has stayed resilient, with growth picking up to 6.8% last year and averaging 7.6% for the first half of 2013. The government is targeting full-year growth of 6.0-7.0% for 2013, followed by 6.5-7.5% next year. Policymakers are betting that this year’s upper 7.0% limit can be achieved. Going into next year, however, the consensus is projecting growth which falls below the lower 6.5% end of the official target.
Meanwhile, the country experienced a sharp pickup in inflationary pressures last month after the consumer price index accelerated to 2.7% (y-o-y), up from a four-year low of 2.1% in August. The latest reading takes inflation for the first nine months of this year to 2.8%, which is still below the lower limit of the 3.0-5.0% official target range for this year. The benign inflation climate has enabled the central bank to keep borrowing costs at current low levels which are supportive of domestic demand. Most analysts expect interest rates to remain on hold through the remainder of this year in spite of September’s spike in prices.
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