Bangko Sentral ng Pilipinas said Monday it will not join other central banks in adjusting interest rates, given the country’s strong economic fundamentals.
Bangko Sentral Governor Amando Tetangco Jr. made the statement, after Bank of Japan followed the European Central Bank in imposing negative rates in a bid to revive lending. The US Federal Reserve, meanwhile, increased its rate in December last year.
“We monitor what AE [advanced economies] central banks and central banks in the region do as these affect risk appetite of global investors and therefore capital flows also. Authorities will do what they believe would work for their specific circumstances,” Tetangco said in a text message.
“Also, we don’t have to move in sync. So far, our fundamentals have held up against these and other headwinds, aggregate demand remains firm and inflation expectations are well anchored. Thus, there is no real urgency to change stance of policy now,” Tetangco said.
The Philippine gross domestic product grew 6.3 percent in the fourth quarter and 5.8 percent in the whole of 2015, making it one of the fastest growing economies in the region. Inflation rate also averaged 1.4 percent last year, one of the lowest on record.
Tetangco said election spending this year would have a small positive impact on GDP and could raise inflation slightly.
“But these are not expected to persist. Many of the critical economic reforms have been institutionalized, so we can expect continuity of policies,” Tetangco said.
Moody’s Analytics, a division of Moody’s Corp., said the Philippines was in a good position to ride out the external headwinds associated with economic and financial market volatility.
Moody’s Analytics said in a report the strong growth in services including business process
outsourcing was helping offset weakness in merchandise exports amid sluggish global demand and crop production because of drought.
Tetangco said economic expansion was achieved last year amid a low inflation environment. Inflation in 2015 averaged 1.4 percent, below the target range of 2 percent to 4 percent.
The manageable inflation encouraged Bangko Sentral to keep policy interest rates unchanged last year. Benchmark interest rates were retained at 4 percent for overnight borrowing and 6 percent for overnight lending.
Bangko Sentral Deputy Governor Diwa Guinigundo said earlier monetary authorities were not likely to tweak the current monetary settings due to a sustained robust economy, even if
other Asian countries did so.
Guinigundo said there were three major factors to be considered before a change in policy settings could happen. These are the state of the economy, monetary condition and inflation rate.
British bank Hongkong and Shanghai Bangking Corp. earlier said Bangko Sentral might implement a policy rate cut in the second quarter this year as inflation remained manageable.
HSBC said Bangko Sentral would have enough room “to maneuver” in its monetary policy stance, especially with the implementation of an interest rate corridor in the second quarter of 2016.
The last time Bangko Sentral’s policy-making Monetary Board changed the policy rates was on Sept. 11, 2014, when overnight borrowing was increased by 25 basis points to 4 percent and overnight lending was adjusted by 25 basis points to 6 percent.