MANILA, July 4 (Reuters) - Standard & Poor's Ratings Services on Wednesday raised its credit rating on the Philippines to one notch below investment grade, a move likely to boost bonds and currency trades and further lift an equity market that has hit new peaks this week.
The ratings move by S&P puts the country one rung below its Southeast Asian neigbour Indonesia, which bagged investment grade ratings from Fitch Ratings last year and Moody's Investors Service early this year.
S&P said it upgraded the long-term sovereign credit rating of the Philippines to BB plus from BB with a stable outlook, citing improved fiscal flexibility and strong external position, but said further rating improvements depends on Manila's ability to raise income levels or sustain revenue reforms.
"The foreign currency rating upgrade reflects our assessment of gradually easing fiscal vulnerability, as the government's fiscal consolidation improves its debt profile and lowers its interest burden," S&P said in a statement.
"The rating action also reflects the country's strengthening external position, with remittances and an expanding service export sector continuing to drive current account surpluses."
S&P said the country's high, although declining, interest burden and weak revenues were rating constraints, along with relatively high government foreign-currency debt at 42 percent of the total.
The Philippines is one of several Southeast Asian countries showing stronger signs of resilience to global turbulence than the rest of Asia as buoyant domestic spending offsets struggling exports.
Presidential press secretary Ricky Carandang said in a text message to reporters that the ratings move affirmed the government's fiscal management strategy.
"At a time when countries around the world are debating austerity versus stimulus, we have had the fiscal space to provide stimulus without weakening our fiscal position."
Finance secretary Cesar Purisima said in a text message to reporters: "We can now clearly make our case for an investment grade status."
Manila wants to win its first investment grade rating before President Benigno Aquino steps down from office in 2016 to lower the country's borrowing costs and widen its base of potential investors, as some funds have restrictions on holding sub investment grade debt.