BSP sees less pressure to raise rates

MANILA, Philippines -  The Bangko Sentral ng Pilipinas (BSP) expects less pressure to tighten its monetary policy as it foresees the US Federal Reserve keeping rates steady for the rest of the year.

BSP Deputy Governor Diwa Guinigundo said the probability of a further increase in US interest rates has gone down to 40 or 50 percent instead of 90 percent this year.

On Thursday, the US Fed kept its benchmark interest rate unchanged at a time of low inflation. It has raised rates twice this year in March and June to a range of one to 1.25 percent.

The US central bank said it still envisions further ‘gradual’ rate increases.

“The next one maybe coming in probably in the first quarter of 2018. At least for the rest of 2017, we do not expect additional pressure coming from the US Fed,” Guinigundo said.

He explained the perceived recovery in the US does not necessarily translate immediately to more employment.

“In the general scheme of things, we don’t expect the US Fed to continue exerting pressure on us to start considering a possible tightening of monetary policy in the Philippines,” Guinigundo said.

The robust domestic economy and benign inflation environment has allowed the BSP to keep an accommodative stance as it last adjusted policy rates with an increase of 25 basis points in September 2014.

Economic managers through the Development Budget Coordination Committee (DBCC) retained the country’s growth target from 6.5 to 7.5 percent this year.

This despite the slowdown in the first quarter to 6.4 percent from 6.6 percent in the fourth quarter last year due to weak private consumption.

Guinigundo pointed out the BSP does not have to respond immediately with any pressure coming from the US Fed.

“I think we have our own idiosyncratic considerations of the domestic economy Yes interest rate differentials will be a material factor when the US Fed starts jacking up interest rates. There will be some differential between local and foreign interest rates,” he said.

BSP Governor Nestor Espenilla Jr. said the US Fed is still trying to decide on the pace and timing of the normalization of benchmark interest rates.

“They have articulated that they are going to normalize but you know as weeks pass, they themselves are changing. That’s really what data is telling them. It’s no longer as clear as what it used to be,” Espenilla said.