BSP sees no need to change policy stance

Despite a more hawkish US Fed, the Bangko Sentral ng Pilipinas (BSP) said prevailing monetary policies in the country remained appropriate, leaving no room for adjustment in key rates in the near term.

“The markets have viewed the Fed statement to be more hawkish than they had anticipated. With the assessment that near-term risks to the economic outlook have diminished, analysts see that there could be a move as early as September, although the statement did not strongly point toward one,” BSP Governor Amando M. Tetangco Jr. said in a text message to reporters Thursday.

The US Federal Reserve on Thursday (in Manila) kept rates unchanged given employment gains, “strongly” growing household spending, higher labor utilization, and a moderate economic expansion last month, reports said.

“That assessment should be overall positive for emerging market economies, including the Philippines, as it reflects a move toward normalization, and that the US will indeed be another post for global growth going forward,” Tetangco said.

“That said, this would still not be reason enough for us to change our monetary policy stance. The outlook for domestic inflation remains well-anchored, and domestic demand continues to be solid,” the BSP chief added.

“The Fed did strike a rather hawkish tone (near-term risk diminished), [hence] remained committed to its data-dependent tact,” Bank of the Philippine Islands associate economist Nicholas Antonio T. Mapa said in a note to clients Thursday.

“The September meeting will feature an updated dot plot and new economic forecasts. By that meeting, we’ll probably get even stronger hints at a Fed rate hike. After all, they did signal as early as May that all FOMC [Federal Open Market Committee] members were in favor of one rate hike within the year,” Mapa added.

At its policy meeting last month, the BSP’s Monetary Board kept the policy rate or the overnight reverse repurchase facility at 3 percent. The overnight lending facility was also maintained at 3.5 percent while keeping the overnight deposit facility at 2.5 percent.

The Monetary Board earlier made operational adjustments on the key rates in line with the implementation of the interest rate corridor (IRC) aimed at mopping up excess liquidity in the system by moving market rates toward the policy rate. The overnight lending and deposit facilities serve as the bounds of the corridor.

The BSP’s highest policymaking body likewise kept the reserve requirement ratios.

BSP Deputy Governor Nestor A. Espenilla Jr. said the Monetary Board had deemed that the inflation environment “continues to be manageable,” with the rate of increase in prices of basic goods seen setting at the lower end of the 2-4 percent target range this year.

The BSP nonetheless had slightly cut its inflation forecast for 2016  to 2 percent from 2.1 percent as the programmed wage increase was higher than the actual hike.