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BSP to keep policy rates steady

Says Fed action was as expected, inflation appears well-behaved
By: - Reporter / @bendeveraINQ
/ 12:30 AM March 17, 2017

The Bangko Sentral ng Pilipinas will unlikely change policy settings at its meeting next week even as the US Federal Reserve raised interest rates to sustain economic growth, Governor Amando M. Tetangco Jr. said Thursday.

“The Fed’s move, though widely expected, still contained valuable market information, particularly the indication of continued gradual pace of next steps and the consequent market interpretation that the Fed is willing to let inflation overshoot. In a way, that can be seen as positive for risk sentiment in the near term, but on the whole the Fed’s balanced view could be good for global growth and trade particularly for trading partners of the US like the Philippines,” Tetangco said in a text message to reporters.

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The US Fed on Thursday morning in Manila raised its overnight rate by 25 basis points to a target range of 0.75-1 percent—expected to be the first of three rate increases this year to bring up the rate to 1.4 percent by yearend—as US President Trump’s promise to jack up infrastructure spending while slashing taxes is seen to grow inflation faster.

In December, the policy-setting Federal Open Market Committee unanimously voted to raise the key federal funds rate to a range of 0.5-0.75 percent, only the second time that US interest rates were increased during the last 10 years following a similar move in 2015.

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“We will therefore watch further developments on the trade side to see the impact on bank and corporate credit activities,” Tetangco said.

But Tetangco said that given the Fed action was as expected and inflation for now was seen to be well-behaved, “there appears to be no need to tweak policy settings” locally.

The Monetary Board, the BSP’s highest policymaking body, will tackle monetary policy settings at its March 23 meeting.

Last month, the Monetary Board raised its inflation forecasts for 2017 and 2018 to 3.5 percent and 3.1 percent, respectively, from 3.3 percent and 3 percent previously.

The Monetary Board attributed its higher forecasts to increasing fuel prices on top of a weaker peso since the fourth quarter of last year.

The adjusted projections nonetheless remained within the government’s 2-4 percent target for the next three years.

The Monetary Board nonetheless kept key policy rates steady during its Feb. 9 policy meeting as it noted that its latest baseline forecasts continued to indicate that the future inflation path would remain within the target range of 2-4 percent for 2017-2018.

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The last two years saw below-target annual inflation rates: A two-decade low of 1.4 percent in 2015 and 1.8 percent in 2016.

Headline inflation rose 3.3 percent in February, a 27-month high, bringing the two-month average to 3 percent or at the middle of the government’s target range.

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TAGS: Bangko Sentral ng Pilipinas, economic growth, Governor Amando M. Tetangco Jr., Interest Rates, US Federal Reserve
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