BSP rules out immediate rate action

THE CENTRAL bank is in no hurry to make new adjustments to interest rates even as consumer prices give it space to do so.

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said that despite the recent slowing of inflation, monetary authorities remained on guard against volatility in financial markets.

“Policy divergence” among central bankers in advanced markets, whose economies are moving in opposite directions, might result in heightened risk aversion that could affect countries such as the Philippines.

This followed the European Central Bank’s (ECB) announcement that it would   start its own quantitative easing (QE) program to flood the   sputtering European economy with cheap cash.

“The ECB action to further ease monetary conditions in the EU should boost market confidence near-term, especially as the ‘announcement uncertainty’ is eliminated,” Tetangco said, referring to speculative trading behavior among investors ahead of major events.

The ECB’s decision, along with Japan’s similar action earlier this month, runs counter to the US Federal Reserve’s expected increase in benchmark rates this year as the American economy shows stronger signs of recovery.

Last year, the US Fed put a stop to its five-year-long quantitative easing program that, at its height, involved the buying of $85 billion of mortgage-backed securities and US treasuries from the open market. This infused the world economy with freshly printed dollars, sending interest rates to record lows.

For its part, the BSP said it was comfortable with where local policy rates stood at the moment, despite the recent decline in consumer prices that came as a result of cheaper fuel.

The BSP’s overnight borrowing and lending rates currently stand at 4 and 6 percent, respectively.

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