Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. said Monday there is no need at the moment to tweak the current policy settings amid the looming interest rate hike by the US Federal Reserve.
“The market has been slowly adjusting to the March hike as seen in auction results and even on the peso movements. While the anticipatory moves of the market could pave the way for a smoother price action should the Fed actually hike in their March meeting, there might still be volatility if the Fed disappoints,” Tetangco said in a text message to reporters.
“Because the market may have already priced in the March Fed move, we may have no need to make adjustments to policy for the moment… but as I said we remain data dependent and take into consideration latest and expected developments in our assessment,” Tetangco said.
He said monetary authorities would closely monitor market reaction and allow for the market to take some pressure off positions they have built. Tetangco assured that Bangko Sentral “will not hesitate to come in should moves be excessive.”
Fed chair Janet Yellen said on March 4 the Fed was set to increase interest rates later this month as long as economic data on jobs and inflation held up.
“At our meeting later this month, the committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate,” Yellen said in a statement delivered to a business luncheon in Chicago.
Yellen also said rates were seen to rise faster this year as the US economy appeared clear of any imminent hurdles at home or abroad.
Tetangco also said there was a need to revisit the inflation forecasts made earlier taking into consideration the expected Fed action. The Monetary Board of Bangko Sentral projected that inflation would average between 2 percent and 4 percent for 2017 and 2018.
Meanwhile, DBS Bank of Singapore said in a report Monday Bangko Sentral might also get cues whether or not to raise interest rates in the succeeding meeting from the outcome of the February inflation and January trade data. Inflation data will be out this week.
DBS said inflation in February likely accelerated to 3 percent from 2.7 percent a month ago, driven mainly by higher increases in food prices.
“Given relatively higher oil prices this year, the upward trend in inflation is intact. Not only has the BSP highlighted higher inflationary risks going forward, but the central bank is also of the opinion that the domestic economy remains robust. That much is evident if we were to look at import growth figures,” the bank said.
It said import growth jumped 14 percent in 2016 and the January 2017 print was likely to remain close to 10 percent year-on-year. It said strong investment growth was likely to be sustained this year, even if at a slower pace.
“It will be interesting to monitor any comments from the BSP ahead of its policy meeting later this month, particularly given that the US Fed is anticipated to raise its policy rate in mid-month. We reckon that a total of 50bps rate hikes will be delivered by the BSP this year, and the first one may come as early as in the next policy meeting,” DBS said.
