BSP to follow US Fed lead on policy rates

The Bangko Sentral ng Pilipinas (BSP) may cut its key rates by as much as 25 basis points, depending on how much shaving of its own key rates will be done by the US Federal Reserve Committee this month.

BSP Governor Rafael Buenaventura said the central bank’s move will depend on the "aggressiveness" of the US Fed in cutting its overnight borrowing and lending rates.

"If the US Fed becomes less aggressive and cuts rates at less than the anticipated 25 basis points, there is little room for the BSP to central bank to cut its own key rates," Buenaventura said.

The BSP chief said the central bank is also looking at other factors such as inflationary expectation, the movement of the peso and the trend in oil prices.

"All of these will have to be weighed in and depending on the numbers, it might allow us to remain where we are or we might just do a minimal cut," Buenaventura said.

Last week, the BSP kept its key rates unchanged at nine percent and 11.25 percent for overnight borrowing and lending rates a move that is reflective of the BSP’s concern over inflation levels, lower export and GDP (gross domestic product) growth expectations and the peso’s weakness.

The BSP fears that certain upside risks remain, especially with the unresolved Abu Sayyaf kidnappings, while the oil companies’ plan to raise oil prices could trigger inflation levels to rise.

Buenaventura said the BSP is also closely monitoring the peso-dollar movement especially since the depreciation of the peso in the past weeks has been putting pressure on inflation.

Earlier, Buenaventura said that while the 6.5-percent inflation for May provides scope for further monetary easing, this hardly constitutes a trend and wants more time to see if the inflation level can be kept or sustained for a longer period.

On the peso, government said the local currency’s weakness is temporary while foreign exchange rate traders said they expect corrections to take place this week.

With no movement in BSP’s key rates until possibly the end of the month, Buenaventura said Treasury bill (T-bill) rates will remain stable.

"The current 91-day T-bill rates are already good levels. If the overnight borrowing and lending levels do not change, T-bill rates are expected to be moving sideways," Buenaventura said.

On the other hand, expectations of a stabilized dollar as well as clearer signs of a recovery in the economy of the Philippines’ biggest trading partner – the US, should also enable local interest rates to be steady, Buenaventura said.

The BSP which wants to keep a low-interest rate regime to spur more economic activities that hopefully would boost economic recovery efforts, so far, has trimmed overnight borrowing and lending rates by a total of 600 basis points since December last year. – Rocel Felix