The Bangko Sentral ng Pilipinas is open to further slashing its key policy rates, which recently have been brought to new record lows.
This was the view of BSP Governor Amando Tetangco Jr., who said the central bank was not ruling out another reduction in its key policy rates this year, specially if global economic conditions deteriorate some more and dampen the Philippines’ own growth prospects.
He said the BSP was prepared to exercise flexibility in setting interest rates when changes to existing levels would be deemed necessary.
“The latest action by the Monetary Board is consistent with the latest assessment of the inflationary environment. But things do change and we should be alert to these changes. We should see whether there is an indication of a need for another policy change,” Tetangco said Friday.
Last month, the BSP cut its key policy rates by 25 basis points, bringing the overnight borrowing and lending rates to 3.75 percent and 5.75 percent, respectively.
The move was based on the central bank’s assessment that the global economy remained anemic. The BSP said lower interest rates were needed to help boost consumption and investment demand within the domestic economy. The boost would help offset the adverse effects—such as reduced export earnings and decelerated growth in remittances and foreign direct investments—of a potential global economic slowdown.
Lower key policy interest rates, which influence commercial lending rates, are expected to help spur demand for bank loans. Higher loans are then seen to fuel an increase in consumption and investments.
The BSP said it believed there was room to reduce rates further because the inflation rate in the Philippines so far this year has remained benign. It averaged only 3 percent in the first half compared with the full-year inflation target of between 3 and 5 percent.
Even if demand for goods and services would increase because of the latest rate cut by the BSP, average inflation for the full year was still expected to fall within the official target.
Tetangco said the BSP shared with other economies the view that the global economy remained anemic, at least within the short term. “The assessment of the US Fed is consistent with our own assessment that the global economy remains weak. We also need to watch out for things happening outside,” Tetangco said.
Meantime, UBS Securities said there might be no further policy rate cuts this year although it was still possible given threats of surging global food prices.
In a new research note, the investment research firm said even lower interest rates were possible in the Philippines although this could take worse-than-expected developments to transpire.
“Having preemptively eased in July, more negative economic news flow than we anticipate would be required to push the [Bangko Sentral] to ease again,” said Edward Teather, who wrote the 12-page study.
Teather said that such was the scenario “specially given the risk of higher global food prices and the high weight of food in the Philippine consumer price index.” He added that while fiscal policy was loosening, additional economic stimulus outside the budget was not anticipated.
Teather agreed to the view that, among the economies of the five original members of the Association of Southeast Asian Nations (Asean), healthy financial balances have been providing some insulation from the weak global environment. The so-called Asean 5 includes the Philippines, Indonesia, Malaysia, Thailand and Singapore.