BSP sees room for ‘accommodative’ policies to boost economy
MANILA, Philippines—The Bangko Sentral ng Pilipinas, which has paused from hiking interest rates as problems in the global economy weighs down on the country’s growth prospects, has seen room for “accommodative” policies to encourage economic activity.
BSP Governor Amando Tetangco Jr. said the fact that the increase in consumer prices in the Philippines, together with other emerging economies in Asia, has become benign would allow for a monetary policy measure that would help boost growth of economies.
“Asian EMEs [emerging market economies] have policy space… [They] have room for deficit spending and for accommodative monetary policies that should help stimulate economic activity,” Tetangco said in a speech delivered during the 20th EJAP Business Journalism Awards held Tuesday night at the Metropolitan Museum in Manila.
Tetangco, speaking before members of the Economic Journalists Association of the Philippines Inc. (EJAP), said that the easing of inflationary pressures has given the BSP and its counterparts in other emerging markets the leeway to implement an accommodative policy measure.
In the first half, the BSP has raised its key policy rates twice by a total of 50 basis points as a response to rising inflationary pressures brought about by increasing domestic demand. This brought the BSP’s policy rates to 4.5 and 6.5 percent, respectively.
The BSP also hiked the reserve requirement for banks twice, by one percentage point in June and by another percentage point in July, bringing the figure to 21 percent.
Following the increase in the reserve requirement in July, however, the BSP has paused from implementing further measures that aim to temper growth in liquidity.
It said inflationary pressures have subsided, and the focus has shifted from the need to control inflation to the need to avoid causing a further drag on the domestic economy, which has been dampened by the weak global demand.
But Tetangco said that central banks of emerging markets have been allowed not only to keep rates steady, but also to actually implement monetary policy easing, which could be done through cuts in interest rates or reserve requirement.
In the last policy-setting meeting of the BSP’s Monetary Board on October 20, it decided to keep policy rates and reserve requirement steady.
The BSP cited the still weak global economy, dragged by the debt woes in the Euro zone and sluggish performance of the US economy, for the decision.
The BSP did not cut the interest rates nor the reserve requirement in the belief such measures were not needed.
Nonetheless, in his speech during the EJAP event, Tetangco cited the flexibility for central banks in emerging markets to do so.
Lower interest rates encourage people and businesses to borrow more to finance consumption and investments activities that can boost growth. Lower reserve requirement, which is the percentage of deposits that banks must keep as reserves with the BSP, allows banks to use more of their funds for lending.
In the first half, the Philippines grew by 4 percent, slower than the over 8 percent registered in the same period last year. The first-half growth prompted the country’s economic managers to cut their growth target from the range of 5 to 6 percent, to a range of 4.5 to 5.5 percent.
