Monetary policy stance remains appropriate - BSP

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) believes the country’s “accommodative” monetary policy stance remains appropriate due to the benign inflation outlook amid the clamor of multilateral lender International Monetary Fund (IMF) for emerging market economies in Asia including the Philippines to tighten up.

In an interview with reporters, BSP Governor Amando M. Tetangco Jr. said the country’s favorable inflation outlook continues to allow the central bank to keep its accommodative monetary policy stance despite withdrawing almost all the liquidity enhancing measures introduced during the height of the global financial crisis in November 2008.

“As the financial markets stabilized and as the economy showed signs of recovery, we started to unwind early this year but the restoration and normalization could not continue because of the uneven pace of economic recovery particularly in Asia and developed economies,” Tetangco stressed.

The BSP has set an inflation target of 3.5 percent to 5.5 percent this year and three percent to five percent between 2011 and 2014 but latest forecasts show that inflation would likely average 3.5 percent this year and three percent in 2011 and 2012.

Tetangco said economic growth in advanced economies led by the United States continued to be weaker-than-expected as emerging market economies including the Philippines posted surprising economic growths.

“The recovery turned out to be weaker than expected. So we basically maintain the stance of monetary policy and we continue to do that given that the inflation picture remains favorable,” the BSP chief stressed.

Due to the benign inflation outlook, the BSP has kept its key rates at record low for the 11th consecutive policy-setting meetings since July last year.

During the height of the global financial crisis, the BSP slashed its key policy rates by 200 basis points between December 2008 and July 2009 but introduced several liquidity-enhancing measures to cushion the impact of the global economic meltdown. This brought the overnight borrowing or reverse repurchase rate at a record low of 4.0 percent and its overnight lending or repurchase rate at six percent

Just the other day, IMF through its Regional Economic Outlook for Asia and Pacific stressed the need for emerging economies in Asia including the Philippines to start tightening its accommodative monetary and fiscal policies in light of emerging signs of inflationary pressures as well as strong influx of capital brought about by the robust economic growth in the region.

In its Regional Economic Outlook (REO) for Asia and Pacific entitled “Consolidating the Recovery and Building Sustainable Growth,” IMF said the strong economic growth in the region is leading to new policy challenges as inflation pressures continue to build, prices in some property markets continue to grow at double-digit rates, and strong capital inflows add further to domestic price pressures.

However, Tetangco said there is no urgent need for the Philippines to tweak its key policy rates as the country’s inflation outlook remains manageable and stable.

“That depends on circumstances and conditions in individual countries. Like in our case, if you look at history of what we have done, we have implemented the liquidity enhancing measures starting november 2008 and then as the financial markets stabilized and as the economy showed signs of recovery, we started to unwind early this year,” he explained.