BSP seen to maintain easy monetary policy

Current monetary policy settings remained appropriate to support the country’s growth without leading to price increases that could choke the local economy, the Bangko Sentral ng Pilipinas (BSP) said.

This followed the release of government statistics that showed inflation, or the average rate of price increases of key consumer products and services, remained slow at 2.8 percent in June. This was slightly faster than the 2.6 percent recorded in May, but was still below the BSP’s target range of between 3 and 5 percent for 2013.

While inflation in June was also within the BSP’s forecast of 2–2.9 percent for the month, the BSP said it would continue to watch developments overseas, particularly in advanced markets like the United States and Europe, that could affect global economic conditions.

“(The inflation rate in June) further supports our assessment of manageable inflation and the appropriateness of our current policy stance,” BSP Governor Amando M. Tetangco Jr. told reporters.

“That said, the BSP will continue to monitor external developments, particularly any changes in monetary policies of and assessments in the demand conditions by advanced economies in their jurisdictions,” he said.

Late last May, signals by the US Federal Reserve on the possible winding down of its bond-buying program—which has been supporting the world’s largest economy—sent asset prices in emerging markets crashing.

This was after foreign investors took the US Fed’s signal as a cue to pull out of emerging markets like the Philippines to prepare for a comeback to the United States.

In the Philippines, this pushed local share prices into the so-called “bear” territory, while the peso weakened to its lowest point in more than a year.  Signs of a recovering US economy led to an increase in oil prices to more than $100 a barrel—the first time in more than a year. The weaker peso also made imports like oil more expensive, leading to higher fuel prices that are passed on to consumers.

“We will monitor the impact of these factors on global and domestic investor sentiment and growth dynamics,” Tetangco said, hinting at possible adjustments in the BSP’s policy stance on interest rates, either to bring inflation down or to further support growth, should economic conditions suddenly change.