BSP policy to consider shift in market focus


    The Philippine central bank said its next monetary policy meeting will take into account the shift in global market behavior from that of caution toward a US interest rate hike to that of concern over the speed of normalization in US rates.

    Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr., said in a text message to reporters on Thursday: “With the improvements in some of the economic indicators that the Fed is looking at, the market seems to now be shifting its focus from a lift-off to the speed of normalization.”

    At the end of its two-day meeting on Wednesday, (Thursday in Manila), the US Fed kept its benchmark federal funds interest rate unchanged at near-zero percent, as expected, but remained ambiguous on the timing of a rate increase.

    In its policy statement, the Fed noted the labor market continued to improve, with solid job gains and declining unemployment. It added that inflation continued to run below the Federal Open Market Committee’s longer-run objective, partly reflecting earlier declines in energy prices and easing prices of non-energy imports.

    “The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run,” it said.

    In his comment, Tetangco said the BSP “will monitor how any such shift would affect market behavior, especially as the recent relative calm in China’s financial markets may temper potential outflows from the EMEs [emerging market economies—including the Philippines]from the Fed normalization.”

    “We will factor in all these during our next policy meeting, to see if there is any need to make adjustments to our policy levers to address any possible financial stability risks,” he said, referring to the August 13 meeting of the Monetary Board.

    Earlier, Tetangco said the central bank’s monetary policy tweaks that were implemented last year placed the Philippines in a “good position” in light of the uncertainty ahead of a any interest rate hike in the US.

    Last year, the BSP’s policy-setting Monetary Board raised its key rates by 25 basis points (bps) each —in July and September, which pushed the rates up to 4 percent for overnight borrowing, and 6 percent for overnight lending.

    The board also increased its interest rates on special deposit accounts to 2.50 percent, while it raised the reserve requirement ratio for banks by 2 percentage points to 20 percent.


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