BSP to watch US Fed

MANILA, Philippines - The Bangko Sentral ng Pilipinas continues to keep a close watch on the US Fed, an official said, stressing that external developments are only among the considerations during rate-setting meetings.

“We would rather observe (the US Federal Reserve) and see what happens,” BSP Deputy Governor Diwa C. Guinigundo said when asked when the central bank expects the US to increase policy rates.

The BSP’s policy-making Monetary Board last week kept the overnight borrowing and overnight lending rates steady on expectations inflation would remain within the two to four percent target for this year until 2016.

The Fed, meanwhile, after a meeting earlier this month dropped the word “patient” from its statement but also signaled it was not in a rush to raise rates.

Guinigundo said the central bank has no “official view” when the Fed is expected to raise rates as decisions and adjustments made in the domestic monetary policy settings are all data-dependent.

Moreover, Guinigundo stressed “while global external developments are key, they are only among those things that we consider when we set monetary policy.”

Guinigundo said the Monetary Board also looks at domestic demand, actual inflation numbers and outlook, domestic liquidity, and credit, among others.

“The extend of the recovery of the global economy is also very important but that is not the only consideration that we look at... External market factors are just among those we look at,” Guinigundo said.

The central bank last week downgraded its forecast for average inflation this year to 2.2 percent to 2.3 percent. Its estimate for the average inflation in 2016 was maintained at 2.5 percent.

The BSP said risks to the inflation outlook remains broadly balanced with upside pressures coming from the pending petitions for utility rate adjustments and the possible power shortages.

Moreover, the central bank said the strong domestic demand and well-anchored inflation expectations support its view that current monetary policy settings remain appropriate.

Key policy rates were last adjusted in September last year, during which they were hiked to ensure inflation would fall within the target band.