BSP has enough room to maintain rates

MANILA, Philippines - Falling oil prices have given the Bangko Sentral ng Pilipinas more space to maintain key policy rates and keeping inflation within the target range, BSP Governor Amando M. Tetangco Jr. said yesterday.

“Indications of easing inflationary pressures owed in part to the decreasing oil prices as well as signs of robust domestic economic growth allow the BSP some room to maintain its current monetary policy stance,” Tetangco told the audience at Security Bank’s Economic Forum 2015 in Makati.

“Even so, we do not pre-commit to a set of policy actions. As I’ve always said, the stance of monetary policy will remain data-dependent,” he pointed out, noting the trend in prices can easily reverse.

Monetary authorities in December left the overnight borrowing and overnight lending rates unchanged as inflation expectations fell within the goals until 2016.

The inflation rate averaged 4.1 percent last year, well-within the three- to five-percent target for the period. For this year, the BSP expects inflation to average three percent, at the midpoint of the two- to four-percent target for 2015.

“Low oil prices represent disinflation pressures. Fuel and fuel-related items amount for nearly 10 percent of our CPI (consumer price index) basket, and we’ve also seen transport fares being adjusted downward,” Tetangco said.

“In addition, the fall in oil prices could benefit us through the increase in household income as well as in terms of lower cost of production,” he said.

Latest available data showed Asian benchmark Dubai crude stood at an average rate of $62.56 per barrel in December last year, below the $107.81-per-barrel average in June 2014 and the $103.99-per-barrel average back in January 2014.

The steep decline in the cost of fuel has led to deflation in some economies but the Philippines is not seen suffering the same, Tetangco said.

“As for deflation materializing in the Philippines, the risk is not significant. For one, our demand conditions are firm, the services and industry remain strong, and on the demand side, consumption is seen remaining robust,” Tetangco recounted.

At the same time, he noted there are upside risks to inflation this year such as the pending petitions for utility rate adjustments and the possible power shortage seen in the summer.

Other risks in the external front include the uncertainty in China’s economic growth prospects, the persisting weakness in the euro area and Japan, and the geopolitical risks in Russia and the Middle East, which could all heighten volatility in financial markets, Tetangco said.

“Going forward, the BSP will remain in the lookout for potential risks to price and financial stability. We will be vigilant to be able to provide timely and calibrated responses to unfolding events,” Tetangco said.