Policy still appropriate

MONETARY POLICY remains appropriate but authorities will consider various scenarios, among them a fresh easing by the US Federal Reserve, during a review next week, the Bangko Sentral ng Pilipinas (BSP) chief said.

“At the moment, our assessment is that our stance of policy is appropriate,” central bank Governor Amando M. Tetangco, Jr. yesterday said in a text message to reporters.

“But we will consider these recent Fed pronouncements given possible effects on flows, their longer-term impact on growth in the US and on international commodity prices to see if there is need to refine our policy stance,” he added.

“For our part, we will consider scenarios during our next meeting and determine, based on these, what the best course of policy action would be for the Philippines, cognizant of conditions that are specific to us.”

Fed Chairman Ben Bernanke, speaking at the Kansas City Fed’s annual Jackson Hole symposium last Friday, reiterated that the US central bank was ready to “provide additional policy accommodation” to support the US economy.

The Fed will review policy on Sept. 12-13. The BSP, meanwhile, will also be conducting its own policy review on Sept. 13, with its decision to be made ahead of a Fed announcement.

Mr. Tetangco said a fresh easing by the Fed or in other “advanced economies could potentially have at least two effects — encourage more flows into EMEs (emerging market economies) because of the interest rate differential and growth prospects both tilting towards EMEs, or keep funds in the US because of market view that further accommodation could stimulate growth or ease employment pressures in the US.”

“The strength, speed and direction of flows would depend on which effect would dominate in the short or medium term,” he added.

“The Fed’s actions, and those of other policy makers, are always based on information currently on hand. Some information is available only to them and may not be apparent to others, especially market participants. They will time actions as they deem appropriate.”

The BSP’s policy-making Monetary Board has reduced key rates by a total of 75 basis points since the start of the year, bringing the central bank’s overnight borrowing and lending rates to record lows of 3.75% and 5.75%, respectively.

Several analysts expect another cut before yearend. After Sept. 13, the Monetary Board has two rate-setting meetings left for the rest of the year. –KATHLEEN A. MARTIN, Reporter, Businessworld