BSP sees no urgency in adjusting rates

MANILA, Philippines –  Monetary authorities said there was no urgency to adjust key policy rates due to the benign inflation outlook amid the surge in capital inflows into emerging markets including the Philippines.

Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said in an interview with reporters that the central bank’s Monetary Board could keep its key policy rates at record lows for some time as inflation remains manageable.

“At this point in time the assessment is that inflation will continue to be manageable. There is no urgency,” Tetangco said, when asked whether policy rates would be adjusted soon.

The next policy-setting meeting of the Monetary Board is scheduled on Dec. 30.

The Monetary Board slashed its key policy rates by 200 basis points between December 2008 to July 2009 to cushion the impact of the global financial crisis on the domestic economy. This brought the overnight lending rate to a record low of four percent and the overnight borrowing rate at six percent.

The board has kept its key interest rates at a record low for 12 straight consecutive policy-setting meetings. However, the BSP has lifted almost all the liquidity enhancing measures it introduced during the height of the global financial crisis.

The benign inflation outlook has allowed monetary authorities to maintain its accommodative policy stance to support the country’s growing economy as the gross domestic product (GDP) posted a stronger-than-expected growth of 7.5 percent in the first three quarters of the year from 0.7 percent in the same period last year.

The BSP has set an inflation target of 3.5-5.5 percent this year and three percent to five percent between 2011 and 2014. It sees inflation averaging 3.63 percent this year and 2.35 percent next year due to the continued strengthening of the peso against the US dollar.

Latest data from the National Statistics Office (NSO) showed that inflation averaged 3.8 percent in the first 11 months of the year from 3.2 percent in the same period last year. The price index inched up to three percent in November from 2.8 percent in October due to more expensive power and petroleum products as well as the slight uptick in food prices.

Singapore-based DBS Bank Ltd. earlier said central banks in Asia, including the BSP, are lagging in terms of adjusting key policy rates despite the 21 recorded rate hikes or shifts in currency regime to tighten policy this year.

“All of Asia is behind the curve when it comes to monetary policy normalization,” DBS said.

The investment bank said the BSP would likely jack up its key policy rates by 50 basis points in the first half of next year, bringing the overnight lending rate at 4.5 percent.

On the other hand, multilateral lender International Monetary Fund (IMF) said there is a need for monetary authorities in the Philippines to start raising interest rates soon as inflation pressures start to build up due to the surge in capital inflows.

“With the narrowing output gap, it may be necessary to start normalizing the policy stance in the near term in order to forestall excess liquidity and inflation pressures,” IMF mission chief Vivek Arora said earlier. –Lawrence Agcaoili (The Philippine Star)