Philippines to benefit from Fed rate decision – BSP

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) said the possible rate hike by the US Federal Reserve in September would be positive for emerging market economies including the Philippines.

 BSP Governor Amando Tetangco Jr. said the markets viewed the decision of the US Fed to keep interest rates unchanged but provided an upbeat view of the labor market and the economy to be more hawkish than anticipated.

The US Fed chaired by Janet Yellen said risks to outlook have waned but gave no clear signal about its upcoming plans.

 Analysts said the US Fed decided to keep interest rates unchanged but left the door open for a possible rate increase in September.

 “With the assessment that near-term risks to the economic outlook have diminished, analysts see that there could be a move as early as September. Although the statement did not strongly point towards one,” he said.

 Tetangco pointed out the decision point to the continued normalization of interest rates in the US.

“That assessment should be overall positive for emerging market economies, including Philippines, as it reflects a move towards normalization, and that the US will indeed be another post for global growth going forward,” he added.

 The BSP chief said the country’s monetary policy stance remain appropriate amid the robust domestic demand as well as the benign inflation environment.

 “That said, this would still not be reason enough for us to change the stance of monetary policy. The outlook for domestic inflation remains well-anchored, and domestic demand continues to be solid,” Tetangco said.

 The BSP Monetary Board has kept interest rates unchanged for 14 straight rate-setting meetings since October 2014 due to modest inflation and sustained economic growth.

 The country’s gross domestic product (GDP) growth accelerated to 6.9 percent in the first quarter of the year from 6.5 percent in the fourth quarter of last year due to robust private consumption and strong fixed capital investments.

 Economic managers of the Duterte administration have lowered the GDP growth target to a range of six to seven percent instead of 6.8 to 7.8 percent.

 Inflation averaged 1.3 percent in the first half of the year, way below the BSP target of between two and four percent.

 The central bank shifted to the interest rate corridor (IRC) system last June 3 to further enhance the transmission of the BSP’s policy decisions to relevant money market rates.

 The framework calls for the for the shift to the use of floor and ceiling rates for short-term financing to be determined through the auction of seven- and 28-day deposit maturities initially set at once a week.

 The rate for the overnight lending facility (ceiling) was set at 3.5 percent while that of the overnight reverse repurchase rate was set at three percent. The rate for the overnight deposit facility (formerly the special deposit account) is still unchanged at 2.5 percent.