Central Banks

Fitch Upgrade of Philippines a 'Seal of Good Housekeeping'

Philippines Central Bank Governor on Fitch Upgrade

A day after the Philippines got its first investment grade rating from Fitch, the Southeast Asian country's central bank governor told CNBC the upgrade was a "seal of good housekeeping."

Fitch applauded the government's strong balance sheet, resilient economy and effective fiscal management, changing its credit rating from BB to BBB-.

The agency is the first of the three major credit rating agencies to make the much-anticipated step of upgrading the Philippines' credit rating to investment grade and the move is seen as a crucial step for the booming economy.

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"We welcome the action of Fitch upgrading the country's credit rating to investment grade and it's important for us. It represents a seal of God, good housekeeping and a clear vote of confidence in the Philippine economy," said Amando Tetangco, governor of Bangko Sentral ng Pilipinas.

Standard & Poor's and Moody's Investors Service both still rate the Philippines at one notch below investment grade. Tetangco said he expected the other two agencies to follow suit soon.

"We expect the other credit rating agencies will not be too far behind in their next moves," he said.

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The Southeast Asian economy has benefited from strong growth in recent years. It grew by 6.6 percent in 2012 and the government is targeting similar growth in 2013. President Benigno Aquino, who took office in June 2010, has been reported as saying he aims to achieve growth as high as 8.5 percent before he steps down in 2016.

The upgrade of Philippines' credit rating is expected to boost foreign investment into the country. Tetangco said while increased flows will help increase productivity, it will have to be managed carefully.

Capital inflows can inflate asset prices, and a country too dependent on such flows is vulnerable to global headwinds. The central bank governor said they will manage flows by using a combination of both traditional and macro prudential policy tools. Macro prudential policies involve harnessing monetary policy with the goal of achieving financial stability.

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"At this stage, we have not maxed out our traditional tools and we still have other macro prudential tools that can be lined up," added Tetangco.

The central bank governor added he expected inflation to remain in the lower end of the target range of between 3 percent and 5 percent in 2013 and 2014, while interest rates - which currently sit at 3.5 percent - will remain low for the near-term.

Correction: An earlier version of this story misquoted Tentangco as saying the Fitch upgrade is a "seal of God." It should, in fact, be "seal of good housekeeping."