KEY POLICY MEETING TODAY

BSP likely to raise key rates – analysts

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The central bank’s Monetary Board (MB) is seen leaning toward a policy rate hike when it meets today to determine the appropriate monetary policy setting for the Philippines in light of growing price pressures, recent policy actions, and domestic and global risks.

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Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said the Board will be looking at a number of issues, particularly the inflation path, which is on an apparent upward trend.

The headline inflation rate stood at 4.5 percent in May 2014.

“We’d like to see the extent of brewing pressures that we have seen lately on inflation and assess the potential second-round effects that can come from these price pressures,” Tetangco told reporters on the sidelines of the launch of the 12th Citi Microentrepreneurship Awards held on Wednesday.

Tetangco noted that these price pressures include food prices, transport fare hikes, power rates and the potential impact of the expected El Niño phenomenon on food and power prices.

The BSP governor also said that given these price pressures, the central bank’s inflation forecast for the remainder of the year may be adjusted upward from its recent forecast of 4.3 percent.

“I would think that there will be an upward adjustment in the inflation forecast, but looking at this forecast as well as market expectations, the general view is that inflation will still remain in the target range, but closer to the upper end of the range,” he said, referring to the 3-percent to 5-percent target for inflation rate this year.

Tetangco said the MB will also look at the impact of its past policy actions, particularly the increase in the reserve requirement ratio (RRR) for banks.

“We’d like to assess that, particularly [its]impact on liquidity growth,” he said.

At its March 27 and May 8 monetary policy meetings, the Monetary Board decided to increase the RRR of banks to 19 percent and 20 percent, respectively, to guard the economy against risks that could arise from strong domestic liquidity.

“What we are looking at is that the growth in liquidity does not, in the future, cause pressures that can lead to issues about financial stability as well as potential inflationary pressures coming on the demand side,” he added.

The BSP Governor added that developments in the global scene, particularly the financial and economic conditions in United States and China, will also be tackled during the MB meeting.

Tetangco said that the Board will assess the implications of US Fed tapering to financial market volatility and its impact on domestic developments.

The MB will also look at the potential effects of the slowdown in China’s economic growth, particularly any potential impact on commodity prices that can affect domestic inflation.

Tetangco also mentioned the implications of geopolitical developments – specifically the ongoing crisis in Iraq – that have already affected oil prices.

“We will consider all of these things consistent with the approach under the inflation targeting framework. We will try to form a view as to the path of future inflation and how this would likely be affected by all of these factors. And then, we will make decision on that basis,” he said.

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