Bangko Sentral hints at further monetary easing | Inquirer Business

Bangko Sentral hints at further monetary easing

The Bangko Sentral ng Pilipinas (BSP) has hinted at another easing of monetary policy in the coming Monetary Board meeting next week following the release of low-inflation data for May.

The inflation rate of 2.6 percent in May brought the five-month average for the year to a modest 3 percent, the low end of the BSP’s inflation target of 3-5 percent for 2013.

BSP Governor Amando M. Tetangco Jr. said the modest inflation showed that there was more space to adjust policy rates without suffocating the economy amid impending developments that could push prices higher.


“We remain mindful of local and global developments, including pending petitions for power rate adjustments and shifts in capital flows and market sentiment that could impact financial and real asset prices going forward,” Tetangco said. “The BSP has policy space to address inflation pressures from these impulses and is ready to make policy adjustments as needed.”


At its last policy-setting meeting, the Monetary Board, chaired by Tetangco, kept key policy rates at record lows of 3.5 percent and 5.5 percent for overnight borrowing and lending.

Rates for special deposit accounts (SDAs) were cut by half a percentage point to 2 percent to encourage local banks to lend to productive activities instead of keeping their money idle in BSP vaults. The Monetary Board will meet next Thursday.

Tetangco’s statement followed a call by the International Monetary Fund (IMF) for emerging market policymakers to be mindful of risks associated with the flow of capital into fast-growing countries like the Philippines.

“The persistence of easy monetary policy increased the flow of capital to emerging markets, especially in Asia and Latin America,” IMF managing director Christine Lagarde said in a speech at the Brookings Institute in Washington DC. “Such flows can be beneficial to an economy, but they can also lead to financial stability risks. Even worse than the tide coming in is the tide going out—a possible sudden reversal of large capital flows that can overwhelm an economy.”

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TAGS: Bangko Sentral ng Pilipinas (BSP), Interest Rates, Philippines, policy rates

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