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BSP seen keeping rates steady in next few months

Current policy settings still appropriate, says BSP chief

Interest rates will remain steady in the coming months as monetary authorities stay on guard against the possible destabilization of consumer prices and sudden volatility in financial markets.

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said the facts on the ground supported the view that interest rates were exactly where they should be.

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In the meantime, issues overseas, such as fuel prices and the uneven economic prospects globally, are still up in the air.

“Our most recent assessment of the policy stance suggests that current policy settings remain appropriate,” Tetangco said in an e-mail to reporters.

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This comes amid consecutive rate cuts by other Asian central banks, eager to give their respective economies an additional boost.

Last week, central banks in Seoul and Bangkok announced cuts in their benchmark rates to stimulate their respective economies. Indonesian monetary authorities slashed interest rates in February. Japan’s central bank is expected to announce a fresh rate reduction next month, said Capital Economics, a think thank, in a note.

In contrast, the BSP in February opted to keep rates on hold even after inflation reached a five-year low of 2.4 percent in January amid cheaper fuel. February inflation inched up to 2.5 percent, but still remains near the low-end of the BSP’s 2014 target range of 2 to 4 percent.

Tetangco recognized risks with charting a different course from the rest of the region, noting this divergence could contribute to financial market uncertainty and capital flow volatility in the short term.

“The prolonged period of low interest rates and liquidity enhancement measures in advanced economies, the recent decline in interest rates in Asia could push investors to continue to search for yield,” according to Tetangco.

Despite this, Tetangco said the BSP would focus on domestic factors.

“Future decisions on the monetary policy stance will continue to be data-dependent, in line with the BSP’s objectives of ensuring price and financial stability while supporting sustainable economic growth,” he said.

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Tetangco said risks to inflation were broadly balanced, and inflation expectations were well-anchored.

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TAGS: BSP, Business, destabilization, financial markets, Interest Rates, volatility
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