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BSP has more room for monetary policy easing â banks
The Monetary Board will convene on May 9, the day the first quarter gross domestic product (GDP) performance will be released.
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BSP has more room for monetary policy easing — banks

Czeriza Valencia (The Philippine Star) - April 29, 2019 - 12:00am

MANILA, Philippines — The Philippines now has more room to unwind last year’s monetary policy tightening as inflation is now under check, but must carefully assess if lowering policy rates would spur growth, according to multilateral banks.

The Monetary Board will convene on May 9, the day the first quarter gross domestic product (GDP) performance will be released.

The Bangko Sentral ng Pilipinas (BSP) has so far kept policy rates steady since raising benchmark rates by a total of 175 basis points last year.

Inflation is now expected to settle within the range of between two and four percent this year.

World Bank senior economist Rong Qian said the BSP now has less considerations for monetary tightening as far as inflation is concerned as most of the aggravating factors are diminished.

 “The BSP’s mandate is to promote price stability. In a context of stable inflation below BSP target range, no major risks of higher inflation caused by other factors (such as El Niño), and stable Fed policy rate stance (of keeping the rates), BSP has the room to lower policy rates to regain policy flexibility if it sees appropriate,” she said in an email to reporters.

ADB president Takehiko Nakao, meanwhile, said that while this is so, the central bank’s decision to cut rate should also be guided by other considerations such as if it would help sustain the country’s rapid economic growth.

 “Inflation is now more controlled in many countries including the Philippines so there is more room for monetary policy,” said Nakao in a recent roundtable with foreign and local media.

“But monetary policy should also be prepared for challenges. We cannot easily cut rates to prepare for the future. Central bank has a new governor and the general statement is the monetary condition is now more favorable because of inflation and exchange rate. But monetary policy should care about so many things. And the Philippines is growing at a rapid pace so the concerns should be on so many things,” he said.

The BSP hiked interest rates aggressively last year to curb rising inflation which peaked at 6.7 percent in October 2018.

The market is rife with expectations of a rate cut this year to support the growth of the economy after it grew by a slower 6.2 percent in 2018 because of inflationary pressures.

The steep rise in inflation, especially in the third quarter of last year, hurt the economy the most in 2018 as this tempered household consumption and investment spending.

GROSS DOMESTIC PRODUCT MONETARY BOARD
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