BANGKO Sentral ng Pilipinas sees no compelling reasons to tweak the current monetary policy stance, even if the US Federal Reserve decides to increase interest rates later this year, because of a manageable inflation environment, Governor Amando Tetangco Jr. said over the weekend.
US Federal Reserve chairman Janet Yellen on Friday said the case for a rate hike became stronger, citing a lot of new jobs were being created and US economic growth would likely to be sustained.
“The Fed chair’s statement is more or less as expected, well balanced and nuanced. The BSP will not necessarily have to move in sync with the Fed should they indeed hike either in September or December as the Fed chair’s comments indicate that they are getting closer to their next move,” Tetangco said in a text message.
“Our current inflation outlook continues to be manageable,” Tetangco said. The average inflation in the first seven months of 2016 settled at 1.4 percent, or below the Bangko Sentral’s target range of 2 percentto 4 percent for 2016.
However, Tetangco said local monetary authorities would remain mindful of the possible some near-term financial market volatility as markets react to the Fed statement and rebalance dollar holdings.
“Nevertheless the BSP has tools to keep market volatility in check. We will continue to monitor developments including changes in tax levies and weather-related disturbances that could impact on domestic price and demand dynamics, and make adjustments to our monetary policy stance as appropriate,” he said.
The Fed raised rates in December last year, the first time in nearly a decade, and projected another four increases this year. But it scaled that projection back to two amid a global growth slowdown, financial market volatility and uncertainty in meeting its 2 percent inflation goal.
The Monetary Board, the policy-making body of Bangko Sentral, on Aug. 11 kept the benchmark interest steady due to the manageable inflation environment and sustained domestic economic growth.
The lending rate of 3.5 percent, borrowing rate of 3 percent, and 2.5 percent for overnight deposit facility were maintained. The reserve requirement ratios were also kept.
Latest forecasts continue to indicate that the average inflation is likely to settle slightly below the 2 percent to 4 percent target range in 2016 and rise toward the mid-point of the target range in 2017 and 2018.
Tetangco said the upside risks to inflation could come from pending petitions for adjustments in electricity rates. He said the slower global economic activity remained the key downside risk to the inflation outlook.
