BSP seen keeping rates steady this year

MANILA, Philippines–Key interest rates will likely be kept steady for much of this year if current price conditions persist, with cheap fuel countering all other factors that can push inflation up.

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr., however, warned that conditions could change at the drop of a hat. Risks could arise from several places, he said, noting a possible reversal in fuel prices and turbulence in financial markets as central banks in rich countries move levers in opposite directions.

“Given the facts that we have, we think the stance of monetary policy is appropriate and if current conditions continue then we’ll probably be able to maintain the stance of policy for most of 2015,” Tetangco said on Tuesday.

Speaking to reporters at the sidelines of the Management Association of the Philippines’ (MAP) general membership meeting, Tetangco took a “dovish” tone as he stressed that risks to inflation were balanced.

Average consumer prices moved up an average 2.4 percent in January, slower than December’s 2.7 percent and the full-year average of 4.1 percent in 2014. He said central bank projections still have inflation averaging within the official target range of 2 to 4 percent in 2015.

The BSP’s main responsibility is to protect the peso’s purchasing power by keeping prices of consumer goods stable. This is done by controlling the cost of money and the amount of cash circulating in the economy, which affects consumer demand.

Tetangco said that while current conditions allowed the BSP to stick to the status quo, “things can change.”

“Right now what I’m looking at is the impact of developments in advanced economies on capital flows and how this will possibly affect liquidity,” Tetangco said.

He said if volatile market conditions would result in massive amounts of money leaving the country, the economy might run out of fuel on which to run. “We also don’t want it to go down too much because we need to provide enough resources to the real economy,” he said.