BSP sees no need to increase rates

MANILA, Philippines -  The Bangko Sentral ng Pilipinas sees no need to tweak the country’s policy settings despite the decision of the US Federal Reserve to raise interest rates for the second time in three months.

BSP Governor Amando Tetangco Jr. said the  announcement of the rate hike in the US after the two-day review conducted by the Federal Open Market Committee (FOMC) was in line with market expectations.

 “At the moment, however, given the Fed action was as expected and inflation for now is seen to be well behaved, there appears to be no need to tweak policy settings,” he said in a text message.

The US Federal Reserve raised interest rates on Wednesday for the second time in three months, a move spurred by steady economic growth, strong job gains and confidence that inflation is rising based on  central bank’s expectations.

The decision to lift the target overnight interest rate by 25 basis points to a range of 0.75 percent to one percent marked a convincing step in the Fed’s effort to return monetary policy to a more normal footing.

Fed chair Janet Yellen pointed to growing faith in the economy’s trajectory.

The  US Fed also stuck to its outlook for two additional rate increases this year and three more in 2018. The US central bank lifted rates once in 2016.

 “The Fed ‘s move though widely expected still contained valuable market information, particularly the indication of continued gradual pace of next steps and the consequent market interpretation that the Fed is willing to let inflation overshoot,” Tetangco said.

The BSP chief pointed out monetary authorities would watch out for further developments on the trade side to see the impact of the normalization of interest rates in the US on bank and corporate credit activities.

 “In a way that can be seen as positive for risk sentiment in the near term, but on the whole the Fed’s balanced view could be good for global growth and trade particularly for trading partners of the US like the Philippines,” he said.

BSP Deputy Governor Diwa Guinigundo said the rate hike in the US was anticipated and factored in by the local financial markets.

“What is at issue now is the number of times the US Fed will consider further raising its policy rate. Data dependency will continue to provide guidance to both the US Fed and market expectation,” he said.

Guinigundo explained the decision of the US central bank is reflective of better output traction in the US, more positive labor market dynamics and inflation path which is proving to be quicker in pace.

 “That is generally positive to emerging markets including the Philippines. Challenge is to pin down the net effect on external payments position and capital flows,” Guinigundo said.

The BSP’s Monetary Board is scheduled to hold its second rate-setting meeting this year on March 23.

Last Feb. 9, the Monetary Board kept interest rates steady despite the growing upside pressure on inflation as well as the challenging global environment.

The policy rates were maintained at 3.5 percent for the overnight lending facility, three percent for the overnight reverse repurchase facility, and 2.5 percent for the overnight deposit facility.

However, the body raised its inflation forecast to 3.5 percent instead of 3.3 percent for this year and to 3.1 percent instead of three percent for 2018.

Inflation kicked up to a 27-month high of 3.3 percent in February from 2.7 percent in January due to higher oil prices, fare hikes, and more expensive electricity rates.

The BSP has set an inflation target of two to four percent between 2017 and 2020 while economic manager penciled a gross domestic product (GDP) growth of 6.5 to 7.5 percent this year.  –  With Reuters