With inflation under control and the peso relatively stable against the dollar, the Bangko Sentral ng Pilipinas (BSP) may keep its key interest rates unchanged even if the US Federal Open Market Committee (FOMC) raises its interest rates by as much as 50 basis points, BSP Gov. Rafael Buenaventura said Monday night.
"We are not ruling out taking corrective measures if necessary," he said. "We may or may not have to raise it. It's not automatic."
The BSP's key interest rates stood at nine percent (for overnight borrowing) and 11.25 percent (for overnight lending). The FOMC met yesterday to discuss the possibility of raising US interest rates. Results of the meeting will be known today.
Buenaventura explained that the only reason the BSP is thinking about raising interest rates is to protect the peso and keep funds from pulling out of the country. He said there might be no need for it since inflation remains under control and that the recent weakening of the peso was on line with other currencies in Asia.
"The inflation rate is under control and the movement of the exchange rate is on line with the region," he said.
As much as possible, he said the BSP would allow the peso to "seek its own level" and intervene only if necessary, that is, if the volume of transactions at the Philippine Dealing System goes up beyond the usual $100 million to $200 million a day.
The inflation rate inched up to 3.7 percent in April from 3.3 percent in March. The average for the four -- month period was at 3.2 percent, still below the full-year target of five to six percent.
For the past few weeks, the peso has been depreciating against the dollar due to concerns about the US Fed hike, the tension in Mindanao, and the closure of Urban Bank. On Monday, it declined to a 19-month low of P41.605 to a dollar as demand for the greenback continued. Currency traders said it could reach P41.75 to $1.
Traders said the BSP may have to raise its overnight rates if the FOMC decides to increase its rates by 50 basis points, way above its usual 25 basis point hike. They said if the increase is only 25 basis points, then the BSP can keep its rates unchanged since the market has already factored it in.
Buenaventura noted that for the past few weeks, there have been withdrawals of portfolio investments or those invested in the stock market, another reason why the peso has been sliding against the dollar. --