BSP ready to ease policy rates anew - Tetangco

Tokyo, Japan – Philippine monetary authorities, fresh from meeting numerous foreign counterparts, are ready to ease policy rates anew.

The Bangko Sentral ng Pilipinas (BSP) has space for monetary easing to support the domestic economy as growth outlook remains gloomy for advanced economies while inflation remains manageable, officials said.

“We cannot rule out further easing of interest rates if there is a need to do so given that the global economic prospects remain unfavorable,” BSP Governor Amando Tetangco Jr. said in an interview on the fringes of the International Monetary Fund (IMF)-World Bank Annual Meetings here.

“(Policy easing) is one option actually. We have space should a tail-risk event happen,” BSP Deputy Governor Diwa Guinigundo said in a separate interview.

Guinigundo said the central bank is closely monitoring external risks like a possible worsening of economic woes in the US and the euro zone, which might push the BSP to provide additional economic stimulus.

The Philippine delegation held numerous meetings with foreign counterparts to discuss recent developments and risks in the global economy.

“It looks like the global economy turned for the worse,” Guinigundo said.

“The problems in Europe involving sovereign indebtedness and the problems with their banks appeared to be going into some kind of a deadlock,” Guinigundo added.

Continuing woes prompted the IMF to cut the growth forecast for the global economy to 3.3 percent this year and 3.6 percent in the next, compared with 3.5 percent and 3.9 percent in the July outlook update, respectively.

The Philippine economy is seen to post a 4.8-percent uptick for 2012 and 2013, with the IMF keeping the 2012 figure but downgrading the 2013 growth outlook from 4.9 percent in July.

The Philippine economy climbed 6.1 percent in the first half.

Tetangco said inflation remains benign, giving the BSP room to slash rates anew. He added that full-year inflation would still hit the lower end of the target.

Inflation slowed to 3.6 percent in September from a seven-month high of 3.8 percent in August, with year-to-date figure steady at 3.2 percent. The nine-month tally is at below the inflation average forecast of 3.4 percent and falls at the lower-end of BSP’s three to five-percent target this year.

Tetangco said the BSP’s policy-making Monetary Board, which would set key rates on October 25, would assess the inflation outlook.

The BSP has cut key rates by a total of 75 basis points this year. Interest rates are at record-lows of 3.75 percent and 5.75 percent for overnight borrowing and lending, respectively.

The BSP is trying to encourage more bank lending and borrowing to boost consumption and contribute to economic growth.

Tetangco said a rate cut would also help in the management of capital flows.

“This would even reduce the interest rate differential between the Philippines and other countries and lower the incentives for hot money, etc.,” Tetangco said.

Guinigundo said rapid capital flows from investors seeking yields in emerging markets complicate liquidity management and inflation control.