BSP has more room to adjust key rates

MANILA, Philippines - A foreseen slowdown in global growth would give the Bangko Sentral ng Pilipinas more space to adjust policy settings as such would temper the rise in inflation.

 “Slower growth could help keep global inflation in check and could lead to more sustainable growth in the medium to long term,” BSP Governor Amando M. Tetangco Jr. told reporters.

 “This could provide us policy space and room to maneuver as we use this period to strengthen our own domestic sources of growth-agriculture and industry, as well as consumption-and build the necessary infrastructure that will create the base for a more solid economic growth trajectory going forward,” Tetangco said.

The International Monetary Fund in its latest World Economic Outlook update, has cut its full-year forecast for global economic expansion to 3.4 percent from 3.6 percent.

The downgraded projection was on the back of a weak first quarter, especially for the United States, and less bullish prospects for a number of emerging markets for the rest of the year.

The IMF also lowered its forecast for 2014 Philippine economic growth to 6.2 percent from 6.5 percent following the disappointing 5.7-percent expansion in the first quarter.

The BSP’s policy-making Monetary Board has kept its key rates steady since the start of the year as inflation expectations remain within the three-to five-percent target.

Inflation has so far averaged 4.2 percent as of June, above the midpoint of the target range as food prices continue to increase following the onslaught of typhoons late last year.

Despite maintaining the overnight borrowing and lending rates at 3.5 percent and 5.5 percent, respectively, the BSP has hiked the banks’ reserve requirement ratio by a total of 200 basis points to rein in the relatively high liquidity growth.

The central bank has also raised the interest rate on the Special Deposit Account (SDA) facility by 25 basis points to 2.25 percent to pull down liquidity growth.

The Monetary Board would revisit policy settings on Thursday, July 31.

UK-based Barclays last week said it expects monetary authorities to leave the key rates unchanged but hike the SDA rate further in order to keep inflation in check.

Tetangco has earlier said the BSP is not committed to a “preset course” of policy actions as it stands ready to adjust any levers if necessary.

The central bank considers domestic and global developments whenever it holds its rate-setting meetings every six weeks.