Bangko Sentral ng Pilipinas said over the weekend it is closely watching global developments and market uncertainties, ahead of the expected interest rate hike by the US Federal Reserve.
Bangko Sentral Deputy Governor Diwa Guinigundo said monetary authorities would take advantage of the current monetary policy settings to find better position to counter volatilities stemming from global developments, especially the impending interest rate hike by the Fed.
Guinigundo made the statement after Fed chair Janet Yellen hinted of an interest rate hike this month (related story on B4), taking into consideration the status of employment and consumer prices in the world’s largest economy.
“A two or three interest rate hikes have been expected by the market in the last few months. Inasmuch as the Philippines retains its monetary space, we should take advantage of such a space to continue monitoring and positioning our monetary policy in the general context of a more challenging global economic and volatile global markets as well as in our own unique circumstance as a small, open economy,” Guinigundo said over the weekend.
“We should remain conscious of unfolding economic and financial developments including the uptrend in consumer prices and domestic credit that would affect inflation and growth dynamics as well as the dictates of financial sector health,” Guinigundo said.
Bangko Sentral kept its own policy rates steady during the Monetary Board’s first meeting this year on Feb. 9. The bank retained the interest rates at 3.5 percent for overnight lending, 3 percent for overnight borrowing and 2.5 percent for overnight deposits.
Inflation rate climbed to 2.7 percent in January, the fastest in two years, led by rising fuel prices and weakening peso. The looming Fed rate hike, coupled with domestic political developments, pulled down the peso to a 10-year low of 50.40 against the US dollar on March 3.
The Philippine economy grew 6.8 percent in 2016, near the upper bound of the Duterte administration’s target range of 6 percent to 7 percent.
Yellen said 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.
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.
Bangko Sentral Governor Amando Tetangco Jr. earlier said local monetary authorities needed not to move “in sync” with the US policymakers.
Finance Secretary Carlos Dominguez III said volatilities experienced by the global financial markets, including the Philippines, were expected as the Fed was anticipated to hike rates this year.
“They have been signaling that they will be increasing interest rates. They have been signaling that how many times in past. So normally, the money is going to where the interest rates are going to be higher. Everybody around the world is affected. There is no currency that is not affected. Everybody is in the same boat,” Dominguez said.
Tetangco said currencies in the emerging market economies, including the peso, were seen to trade sideways as financial markets waited for clarity on the next moves of the US Fed.