No reason to tweak rates – BSP

MANILA, Philippines -  The Bangko Sentral ng Pilipinas (BSP) said the decision of the US Federal Reserve to keep interest rates unchanged gives authorities more room to keep its accommodative monetary policy stance.

BSP Governor Amando Tetangco Jr. said the US Fed downplayed the weakness in economic data as transitory and qualified as it decided to keep interest rates steady.

Tetangco said the decision bodes well for trading partners including the Philippines over the medium term but could lead to some small depreciation pressure on currencies in emerging market economies.

“Nevertheless we will continue to be watchful of shifts in market sentiment, changes in global growth prospects (should the US weakness turn out to be non transitory),” he added.

According to him, the country’s inflation remains within the two to four percent target set by the BSP despite some uptick over the past few months.

“Right now domestic inflation outlook is seen as manageable. Of itself, the Fed action is not sufficient to tilt balance of risks to our baseline scenario,” Tetangco said.

The US central bank is looking at two more rate hikes after raising policy rates by a total of 50 basis points in December and March.

The outgoing BSP chief said authorities would continue to monitor oil price developments, supply and demand of basic commodities like rice as well as petitions in utility rates.

“We will take all these into consideration during our meeting next week,” he said.

The next rate-setting meeting of the BSP’s Monetary Board is scheduled on May 11.

BSP Deputy Governor Diwa Guinigundo said there was no basis to tweak the current monetary policy setting as inflation remains manageable, liquidity in the financial system remains sufficient, and credit growth remains robust.

“In sum, given the data available to us at this point, there is very little basis for deviating from current policy, as suggested by Governor Tetangco recently,” he said.

The BSP has managed to keep an accommodative policy stance since September 2014 amid the robust economic growth as well as the benign inflation environment.

“Conduct of monetary policy in the Philippines certainly gives some weight to interest rate dynamics in the US and other advanced economies. But the major driver of policy is our idiosyncratic factors,” Guinigundo said.

The Monetary Board slashed its inflation forecast last March 23 to 3.4 instead of 3.5 percent this year and to three instead of 3.1 percent for 2018, well within the two to four percent target set by the BSP.

“While our calculus suggests upside risks are more dominant, they are not enough to upset our target for the next two years,” he said.

The current low interest rate regime makes it cheaper to borrow encouraging spending and investment to boost the economy.