Bangko Sentral may review policy-easing stance

MANILA, Philippines - Bangko Sentral ng Pili-pinas (BSP) Governor Amando M. Tetangco Jr. said monetary officials have not ended the policy-easing cycle but admitted that money supply and credit are growing sufficiently to trigger a review of this stance.

Stopping short of saying that monetary policy easing could soon level off, Tetangco said the inflation outlook is still the main consideration for the Monetary Board’s decision when it meets to discuss monetary policy next week.

There have been talks of ending the easing cycle and starting to consider an exit strategy that would unwind the steady relaxation of monetary policy settings that have so far released over P500 billion into the system since December 2008.

But Tetangco said easing is more likely to continue although he admitted that monetary officials are looking more closely at key indicators, specifically the growth in money supply and the distribution of credit.

According to Tetangco, the MB would also have to look at both the first quarter national income accounts and the movements in the gross domestic product as well as the end-May inflation picture.

“We are also looking at the behavior of credit and where it is going,” Tetangco said. “So far we are seeing a healthy flow into the productive sectors of the economy.”

The market has been calling for a possible reduction in the reserve requirement of banks but Tetangco said liquidity growth needed to be assessed. While he would not rule out the possibility of an adjustment in reserve floors, he said numbers suggested ample money supply.

“So far we’ve seen that there’s sufficient liquidity in the system,” Tetangco said. “Domestic liquidity or M3 is still growing and at 14.6 percent, this is still a good growth rate with credit also growing although slowing down from over 20 percent to about 18.9 percent.”

Despite the slowdown in credit growth, Tetangco said the BSP still considered it a “good pace of credit expansion” considering the pace of the country’s economic expansion amid a global recession.

Tetangco said the growth in credit indicates that there is continued economic activity and the demand for money is growing.

Tetangco said a reversal of the BSP’s easing cycle could only be triggered by a surge in the inflation rate and even then, only if that surge would push the projected inflation to the higher end of the expected range for the year.

Even economists have lowered their projected average inflation rate from 4.5 percent to four percent, falling within the government’s official target inflation of 3.5 to 5.5 percent. The BSP said its survey indicated an average forecast inflation rate of 3.9 percent in the second quarter and 1.7 percent for the third quarter.

Tetangco said there are also initial signs of improvement in the ravaged economies of the US and Europe and this could indicate the start of a global recovery.

But Tetangco said the Philippines is still a good distance from considering its monetary exit strategy, saying that monetary easing would continue until such time that growth was no longer under threat or inflationary pressures started building up.