BSP vows ‘neutral’ policy on interest rates

Planned adjustments in interest rates and other central bank tools will be “neutral,” done only in preparation for a major shift in the way monetary policymaking is carried out in the country.

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. reassured market players that the current stance of policy was appropriate, given benign inflation pressures.

“The idea is to achieve a policy neutral change. It’s just an operational adjustment,” Tetangco said at a press conference this week.

His comments come amid ongoing efforts to manage financial market players’ expectations regarding planned tweaks in interest rates in the coming months.

The BSP last September approved a major change in its policymaking tools with a shift to the use of a so-called interest rate corridor system, similar to the style used by several other central banks in the region.

The corridor system calls for a shift to the use of floor and ceiling rates for short-term financing. To keep rates in between these two preset rates, the BSP intends to conduct weekly auctions for term deposits. These auctions will be done every Tuesday starting the second quarter of 2016.

Improving the potency of monetary policy settings, which control liquidity levels and inflationary pressures in the country, will be the main goal of shifting to the use of an interest rate corridor. This is in keeping with the BSP’s mandate of protecting consumers’ purchasing power by keeping prices stable.