Bangko Sentral ng Pilipinas will likely keep policy rates unchanged in the coming months, after the US Federal Reserve decided to maintain its own interest rates, Governor Amando Tetangco Jr. said Thursday.
Tetangco said the latest move by the US Federal Reserve would be positive for emerging market economies such as the Philippines.
“The markets have viewed the Fed statement to be more hawkish than they had anticipated. With the assessment that near-term risks to the economic outlook have diminished, analysts see that there could be a move as early as September although the statement did not strongly point towards one,” Tetangco said in a statement Thursday.
“That assessment should be overall positive for EMEs, including the Philippines, as it reflects a move towards normalization, and that the US will indeed be another post for global growth going forward,” Tetangco said.
The Federal Reserve kept interest rates steady Wednesday but said “near-term risks to the US economic outlook had diminished, opening the door to a resumption of monetary policy tightening this year.”
The Fed said the economy grew at a moderate rate and job gains were strong in June. It also said that household spending had been “growing strongly.”
Tetangco said with the latest development, domestic monetary authorities might not consider changing the current monetary policy settings at the moment.
“That said, this would still not be reason enough for us to change the stance of monetary policy. The outlook for domestic inflation remains well-anchored, and domestic demand continues to be solid,” Tetangco said.
Prospects of a sustained robust domestic economic growth and stable inflation encouraged Bangko Sentral’s Monetary Board to maintain the benchmark interest rates steady in its latest meeting on June 23.
Interest rates were kept stead at 3.5 percent for overnight lending, 3 percent for overnight borrowing and 2.5 percent for deposit facilities. Reserve requirement ratios were also left untouched.
The Monetary Board’s decision was based on its assessment that the inflation environment continued to be manageable. Latest forecasts showed that average inflation would likelysettle near the lower edge of the 2 percent to 4 percent target range in 2016 and rise toward the mid-point of the target range in 2017 and 2018.
The Duterte administration expects gross domestic product to grow between 6 percent and 7 percent this year, on robust domestic demand and investment. The target was a downward revision of the Aquino administration’s previous forecast of 6.8 percent to 7.8 percent for 2016.
GDP grew 5.9 percent in 2015, slower than 6.1 percent in 2014, but was still one of the fastest in the Asian region.
Tetangco said inflation rate in July likely picked up to as high as 2.4 percent from 1.9 percent in June on higher power rates and weaker peso against the US dollar.
Inflation in the first six months averaged 1.3 percent, below the government’s target range of 2 percent to 4 percent for 2016.
ING Bank Manila senior economist Joey Cuyegkeng said in an earlier report the Monetary Board was expected to continue the current monetary policy stance in the months ahead, given the ample liquidity in the financial system and continuous manageable inflation environment.
