The central bank said that there is a probability that its current monetary policy stance could be kept steady for the most of the year if the country’s macroeconomic fundamentals continue to be favorable.
On the sidelines of the Management Association of the Philippines (MAP) economic briefing held in Makati City on Tuesday, Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said that recent conditions show that the monetary policy stance of the central bank remains appropriate.
Tetangco was referring to the Monetary Board’s decision in early February to keep the rate for the overnight borrowing, or reverse repurchase (RRP) facility at 4 percent and the rate for overnight lending, or repurchase facility at 6 percent.
The rate for the special deposit account (SDA) also remains at the current level of 2.50 percent, as is the reserve requirement ratio (RRR) for banks at 20 percent.
“Even as some countries in the region have lowered their policy rates, the monetary authority’s assessment is that inflation would remain within the government’s target range of 2 percent to 4 percent over the policy horizon, while the risks to this outlook are balanced,” he said.
Besides the manageable inflation rate, the BSP governor noted that the Philippines also enjoys an ample fiscal policy space, a sound and responsive banking system, an increasingly inclusive financial system, and a healthy external position.
“And if current conditions continue, then we’ll probably be able to maintain the stance of policy for most of 2015,” he said.
Nevertheless, Tetangco stressed that the central bank will remain watchful of international developments, particularly the impact of the monetary policies of the advanced economies on capital flows.
“Right now what we are looking at is the impact of all of these developments in advanced economies on capital flows and how these can possibly affect our liquidity,” he said.
Tetangco explained that even though the growth of the country’s money supply has declined in the past few months, the BSP is also cautious in keeping it too low as these funds are important to sustain economic activity.
“We also don’t want it to go down too much because we need to provide resources to the real economy. But at the same time, you have got to cap inflows that serve to expand liquidity. Again countervailing factors, so you need to watch that,” he said.