Monetary policies remain adequate, says central banker

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) said yesterday the current monetary policy stance of the Philippines remained appropriate amid the careful consideration by the US Federal Reserve in the timing of the impending interest rate hike.

BSP Governor Amando Tetangco Jr. said monetary authorities “would continue to watch signals if there is a need to tweak policy stance.”

 “But as I see it, policy settings are still appropriately calibrated, and we can continue to allow the foreign exchange rate to respond to market conditions but with scope to rein in excessive volatilities,” he said.

Tetangco added the US Fed is careful in its consideration of the timing of liftoff.

 “I understand the minutes showed that while the Fed’s next moves remain data-driven, some Federal Open Market Committee members would like to also be mindful of the overall impact of any moves on the market. This is important for small open economies like the Philippines that are essentially price takers in this game,” he said.

Last Aug. 13, the BSP kept policy rates unchanged as it expects the 2015 inflation to fall below the target set by the government.

The overnight borrowing rate was kept at four percent and the overnight lending rate at six percent for the seventh straight policy setting meeting of the Monetary Board since September last year.

The decision to keep key policy rates unchanged was based on the BSP assessment that prevailing price and output conditions support maintaining current policy settings.

Inflation eased to a new record low of 0.8 percent in July from 1.2 percent in June, bringing average inflation to 1.9 percent in the first seven months of the year on the back of easing food prices.

The BSP sees inflation averaging between two percent and four percent this year.

The BSP slashed its inflation forecast to 1.8 percent instead of 2.1 percent this year and retained next year’s projection at 2.5 percent.

BSP officials said there is no need to follow other Asian economies on the currency devaluation path after Vietnam decided to devalue the dong following the devaluation of the Chinese yuan last Aug. 11.

“Authorities will do what is best to address country-specific concerns... but because our markets are interconnected, it is reasonable to expect that these actions of central banks in the region could result in weakness in the other currencies, including the peso,” Tetangco said.