The BSP kept its key interest rate steady for a seventh month at 7.5 percent at a meeting on May 4. A possible increase by the Fed was considered then, Tetangco said. The next meeting is June 1.
"The Fed move doesn’t really change the equation, we’ve looked at that last week and we expected the US to raise its rates," Tetangco said. "Looking forward, we are guided by an assessment of the possible causes of inflation such as liquidity, foreign exchange rate and other factors."
The US Fed boosted the federal funds rate by one-quarter percentage point to five percent – the highest level in five years. This is the rate that US banks charge each other on overnight loans, affecting a range of interest rates charged to consumers and businesses.
Fed policy-makers, however, hinted for the first time that its future actions might not be so predictable, indicating that its last action might be the tail-end of its calibrated adjustment of US interest rates.
Failing to match Fed rate increases may lead to a further narrowing of the gap between the Philippine 91-day Treasury bill yield and the US T-bill yield, making the peso and peso-denominated investments less attractive.
It could also weaken the peso as importers start to hedge their dollar requirements on expectations the dollar may strengthen.
"Should the peso fall in the coming weeks, the central bank may have to reassess its position come June," said Marcelo Ayes, first vice president for Treasury at Equitable PCI Bank. "There could be pressure on the peso as importers start to hedge," he added.
Importers will sell pesos to buy dollars, anticipating a boost to the US currency from the Fed’s statement that more rate increases may be needed, Ayes said.
It doesn’t help that the dollar inflow from overseas Filipino workers "usually starts trending down" by the middle of May, Ayes added.
Filipinos abroad sent home $10.7 billion last year.
"Looking ahead, we will continue to be guided by an assessment of the inflation outlook including possible causes of price pressures such as liquidity, exchange rate movements and other factors," Tetangco said.
There are also concerns that the country’s benchmark interest rates were a "bit too low" and should be allowed to correct upwards as monetary officials cautioned that the prolonged negative interest rate differential between the country and the US would not be good over the long run.
The benchmark 90-day treasury bill rate dropped to 4.768 percent from a peak of over five percent a year ago.