The Bangko Sentral ng Pilipinas (BSP) on Friday said domestic monetary policy settings remained appropriate despite emerging external risks causing near-term market volatility.
Reacting to reports that the European Central Bank (ECB)—the Eurozone’s monetary policy maker—had kept interest rates on hold during its latest meeting but had hinted at a new round of stimulus when it meets again in March, BSP Governor Amando M. Tetangco Jr. said “the ECB has been consistent in its messaging—they will do what is needed to meet their inflation target.”
“Their policy meeting is not until a few weeks from now so this is part of guiding market expectations, a powerful tool of central bank authorities,” he added in a text message to reporters on Friday.
Given this, Tetangco said “our operating environment is now more challenging with oil prices continuing to fall and global growth prospects softening.”
Global oil prices continue to slide due to expectations of a supply glut following the lifting of sanctions on oil-producing Iran.
“For the Philippines, these mean more potential financial market volatility in the near term, for which we have tools,” Tetangco said.
“There are developments that are peculiar to our economy—such as the El Niño that is expected to intensify through mid-2016 and the national elections [in May]. Right now, our forecast for inflation is still a slow move to within target over the policy horizon, indicating monetary policy stance remains appropriate for now,” the central bank chief said.
The BSP’s Monetary Board kept key policy rates steady in its last meeting for 2015.
The BSP expects inflation to “rise moderately”—although settling still within the 2-4 percent target—in 2016 from the almost three-decade low of 1.4 percent last year, BSP Deputy Governor Diwa C. Guinigundo said in a briefing yesterday.
Separately, Francisco G. Dakila Jr., managing director of the BSP’s monetary policy sub-sector, said the weakening of the peso in the past few weeks was seen as “very temporary” and had no effect on inflation.
“As the peso is determined by the market … it is free to move either up or down. The peso can move without impact on inflation,” Dakila told reporters.
The peso on Thursday inched closer to the 48:$1 level, settling at 47.94:$1, the weakest since the average of 47.92:$1 in July 2009.
Dakila said the weaker peso also had its benefits.
“There are countervailing impacts on the economy because the weakness of the peso will also benefit the recipients of OFW (overseas Filipino workers) remittances, therefore will have a positive impact on the purchasing capacity or power of OFW families, so that’s also going to be supportive of consumption,” Dakila said, adding that a weak peso against the US dollar would also benefit exporters.