MANILA, Philippines - Monetary authorities are likely to lift liquidity enhancing measures first before raising key policy rates once it implements an exit strategy in light of the global economic recovery.
Bangko Sentral Governor Amando M. Tetangco Jr. told reporters on the sidelines of the 2009 Citi Microentrepreneur of the Year Awarding Ceremonies that monetary authorities would first review the liquidity enhancing measures adopted in November of 2008 before adjusting its key policy rates.
“We will take a look at that (liquidity enhancing measures) first, probably not necessarily raising interest rates right away,” Tetangco stressed.
During the height of the financial crisis in the US, the BSP introduced several liquidity enhancing measures including the reduction of the reserve requirement for banks to 19 percent from 21 percent as well as the increase in the budget for the peso rediscounting facility to P40 billion from P20 billion.
“If and when the time comes for the BSP to take out the stimulus that was associated with the November 2008 measures, I guess we would first look at the liquidity enhancing measures that were taken about a year ago,” the BSP chief said.
Tetangco said inflation remains stable and well within the forecast set by the central bank for this year and next year.
Inflation is seen averaging 3.38 percent or well within the 2.5 percent to 4.5 percent target for this year and 4.2 percent or slightly below the target of 3.5 percent to 5.5 percent next year.
“At this point in time the inflation outlook continues to be favorable, so there is really no pressure or urgency for the BSP to implement an exit strategy. But we will continue to monitor developments and if there are changes and if there is any action that will have to be required then we will evaluate the situation and take action as may be necessary,” he added.
Since December last year, the Monetary Board also slashed its key policy rates by 200 basis points until July this year. This brought the overnight borrowing rate at a record low of four percent and the overnight lending rate at six percent.
According to the BSP chief, member countries of the Asia Pacific Economic Cooperation (APEC) agreed that the global economic meltdown is over.
“We are over or past the worst. We have seen the worst but the future is not going to be a walk in the park. There are still challenges that need to be addressed,” Tetangco said.
He pointed out that one of the challenges would be the strengthening of the financial systems particularly in the more advanced economies that have been significantly affected by the global financial turmoil.
Another challenge, Tetangco said, is how to manage and time the withdrawal of the stimulus that has been provided to both fiscal and monetary policies by many countries.
“From our point of view in the Philippines, we will continue to monitor the outlook for inflation and as it is now the outlook continues to be favorable for both 2009 and 2010. As we have said before the inflation forecasts for these two years are still in the lower bound of the inflation target. So there is room for us to maintain the current stance of monetary policy,” the BSP chief added.