Monetary policy appropriate despite inflation kick – BSP

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) reiterated the country’s monetary policy stance remains appropriate amid the expected gradual rise in inflation and the volatile global financial markets.

BSP Governor Amando Tetangco Jr. said the operating environment in the Philippines is now more challenging amid the softening global growth prospects and the falling oil prices in the world market.

“For the Philippines, these mean more potential financial market volatility in the near-term, for which we have tools. There are developments that are peculiar to our economy —such as El Niño that is expected to intensify thru mid 2016 and national elections,” he said.

Tetangco said the central bank sees a gradual rise in inflation rate to within the BSP’s two to four percent target.

“Right now, our forecast for inflation is still a slow move to within target over the policy horizon, indicating monetary policy stance remains appropriate for now,” he said.

The BSP has kept interest rates unchanged for 10 straight policy-setting meetings since October 2014 amid the country’s strong domestic demand and benign inflation environment.

As a preemptive move, the BSP jacked up interest rates by 50 basis points in 2014.

Tetangco said monetary authorities would continue to monitor developments including growth prospects in advanced economies and China and deploy tools as and when appropriate.

The European Central Bank left its interest rates on hold on Thursday amid growing concerns over faltering global economic growth.

ECB president Mario Draghi said “it will therefore be necessary to review and possibly reconsider our monetary policy stance at our next meeting in March.”

“The ECB has been consistent in its messaging and they will do what is needed to meet their inflation target. Their policy meeting is not until a few weeks from now so this is part of guiding market expectations, a powerful tool of central bank authorities,” Tetangco said.

For his part, BSP Deputy Governor Diwa Guinigundo said the country’s current monetary policy settings remain appropriate as inflation is projected to return gradually to the two percent to four percent target for 2016 and 2017.

Inflation eased to a 20-year low of 1.4 percent last year from 4.1 percent in 2014 on the back of stable food prices and cheaper utility rates due to declining oil prices in the world market.

Guinigundo said upside risks to inflation include the pending petitions for power rate adjustments and the impact of protracted El Niño weather conditions on food prices and utility rates while the continued weakness in the global economy serves as the key downside risk to inflation.

He pointed out the domestic economic activity continues to expand at a solid pace while credit and liquidity growth remains in step with the overall requirements of the economy.