Aquino dismisses risk of bubble as economy grows: Southeast Asia

Philippine President Benigno Aquino said there is no danger of the economy overheating, downplaying the risk of asset bubbles forming even as annual growth exceeds 7 percent.

The central bank is on guard to contain inflation and asset prices, Aquino, 54, said in an interview yesterday at the presidential palace in Manila. The Philippines is targeting growth of 6.5 percent to 7.5 percent this year after expanding 7.2 percent in 2013, he said.

Aquino has overseen the resurgence of a nation once called the Sick Man of Asia and is seeking faster expansion to reduce among the highest unemployment and poverty rates in the region. The economy can cope with the current pace of growth without worrying about excessive inflation because it is underpinned by demand for homes and office space, as well as the need to create more jobs for millions entering the labor force, he said.

“There’s so much to be done in this country,” Aquino said. “There is demand that still has to be met as opposed to availability of supply,” he said, referring to a backlog of 4 million low-cost houses.

Philippine growth in 2012 and 2013 was at the fastest two-year pace since 1954-1955, data compiled by Bloomberg show. Bangko Sentral ng Pilipinas has held its key interest rate at a record-low since October 2012, even as inflation last month accelerated to a two-year high and money-supply growth exceeded 30 percent every month from July through December.

The peso fell 0.3 percent to 44.748 per dollar as of 10:24 a.m. in Manila, set for a third day of declines, according to Tullett Prebon Plc. The Philippine Stock Exchange Index rose to a three-month high.

‘Warming Up’

Analysts including Michael Wan at Credit Suisse Group AG are starting to warn of pressures in the economy. The Philippines risks going down the same path as Indonesia two years ago as it delays tightening monetary policy amid surging liquidity growth and rising property prices, Wan said.

Indonesia, which refrained from raising its benchmark rate in 2012 even as expansion exceeded 6 percent, saw its currency slump the most in Asia last year as growth slid to a four-year low.

“The Philippines is certainly warming up,” Singapore-based economist Wan said. “If policy makers are not careful, they may run into the same mistakes Indonesia made: keeping policy settings too loose for too long and risk a return to the boom-bust cycles the nation has been known for.” –Clarissa Batino, Joel Guinto and Karl Lester M. Yap, http://www.businessweek.com/news/2014-02-19/aquino-dismisses-risk-of-bubble-as-economy-grows-southeast-asia