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Interest rates on the way up, says BSP

Volatility described to be a threat to economic stability

MANILA, Philippines–Interest rates in emerging markets are expected to go up as monetary authorities across the world try to cope with volatility in financial markets caused by policy moves by the likes of the US Federal Reserve.

While underlying economic conditions remain mostly supportive for growth, financial market conditions still pose risks that could weigh on the performance of emerging markets like the Philippines, Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said.

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“There’s still a need to improve and establish a more enduring growth trajectory in the real economies,” Tetangco told reporters Tuesday evening.

Tetangco was in Switzerland late last month for a meeting of central bank governors at the Bank of International Settlements (BIS), which sets policies that all monetary regulators must follow.

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Most central bankers were in agreement that due to swings in financial markets, the stability of real economies may be threatened. Investors have been taking money out of emerging markets to return to advanced economies, where economic conditions have started to return to pre-crisis levels.

“The advice of some of the participants was that central banks should start raising interest rates,” Tetangco said.

On the local front, the central bank chief said the Monetary Board was bent on staying “ahead of the curve” even as inflation creeps up towards the top end of this year’s official target.

He said recent moves to tighten monetary policy settings had been targeted at addressing the issue of excess cash in the economy. Dealing with this would make rate hikes—if at all needed—more effective.

Apart from serving as regulator for the country’s financial system, the BSP’s main role is protecting the public’s purchasing power, which it does by managing the exchange rate and influencing the amount of loans banks extend to businesses and households.

At its last three meetings, the BSP’s policy-making monetary board moved to tighten policy settings to suck up liquidity from the economy.

Banks were asked to set aside more of their clients’ money as reserves. A hike in special deposit account yields by 25 basis points is also expected to encourage banks to leave more money sitting idle in central bank vaults.

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TAGS: Bangko Sentral ng Pilipinas, economy, Interest Rates, Philippines
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