BSP to maintain rates for now – Tetangco

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) is not keen on cutting key policy rates after raising rates late last year, even as inflation continues to decelerate.

“Supported by robust credit growth and ample liquidity, current inflation and output growth dynamics in our country do not at this time warrant a reversal of the preemptive tightening measures we did in 2014,” BSP Governor Amando M. Tetangco Jr. said.

Tetangco, speaking Friday night at the Economic Journalists’ Association of the Philippines’ (EJAP) induction ceremony for new officers, pointed out emerging markets and economies have begun easing monetary policy measures mostly as their inflation rates continue to decline.

“Moreover, there is still some measure of uncertainty hanging over global markets, the implications of which have to be continuously monitored closely. Nevertheless, should the need arise, we have ample fiscal headroom to provide further stimulus to the economy,” Tetangco said.

Monetary authorities earlier this month held key policy rates steady as inflation expectations fell within the target ranges for this year and the next. Overnight borrowing and overnight lending rates have been maintained at four percent and six percent, respectively, since the BSP’s October rate-setting meeting.

In July and September last year, key policy rates were increased by a total of 50 basis points to ensure inflation would fall within the goals for 2014 until 2016. Earlier in 2014, the BSP even hiked the reserve requirement ratios and the Special Deposit Account rate to pull down excessive liquidity growth.

“We believe that our prevailing monetary policy stance remains appropriate,” Tetangco stressed.

Tetangco recounted that two key issues at the moment that continue to pose challenges to the central bank are the disinflation pressures and the divergence in growth prospects and monetary policy among economies.

“In general, low oil prices represent disinflation pressures for oil importing countries like the Philippines. We have already seen this in the slower inflation outturns in the recent months,” Tetangco said.

Inflation fell to an 18-month low of 2.4 percent in January from 2.7 percent in December on the continuous cuts in pump prices and lower utility rates.

Inflation spiked between May and August last year but monetary actions helped by declining prices of oil and some food items kept the rate within the target range. The rate averaged 4.1 percent last year, within the three to five percent goal.

For this year and the next, the central bank has a two- to four-percent target range.

“Unlike in some economies, the risk of inflation falling below zero or to negative levels in the Philippines appears to be minimal. In fact, while our latest forecasts show a lower inflation path, we expect inflation to stay within the government’s target range over the policy horizon,” Tetangco said.

He added that pending petitions for utility rate adjustments, possible power shortages this year, and wage hike appeals also support expectations that inflation would likely remain positive.

“Consistent with our symmetric approach to inflation targeting framework, we have room to wait for additional data to see if the lower end of our target range will be breached for a persistent period,” Tetangco said.

“We are mindful of the uncertainty over the path of oil prices moving forward. As the recent hike in fuel pump prices shows, oil prices can rise just as quickly as they have fallen,” he pointed out.

Oil prices in international markets began dropping in mid-2014 as supply climbed and demand for the commodity weakened.

Asian benchmark Dubai crude, for one, has averaged $45.73 per barrel in January, lower than its $62.56-per-barrel average in December and not even half of its $103.99 per barrel average in the same month last year.