• No ‘one-for-one’ policy rate hikes


    “One-for-one” interest rate hikes shouldn’t be expected if the US Federal Reserve decides to accelerate its policy tightening, the chief of the Bangko Sentral ng Pilipinas (BSP) said on Monday.

    Noting that “people seem to want us to follow,” central bank Governor Nestor Espenilla Jr. told reporters that the current Fed policy stance was “much looser” compared to the BSP’s.

    “Let’s say the US is going to do four rate hikes [this year]but I think it’s important to recognize that today … if you look at the policy stance of the US by comparing its policy rates vis-a-vis its inflation, it is a much looser position than where we are,” Espenilla said.

    “So why must we follow rate hikes one-for-one when we are in [a]different starting point? And our economy is growing much faster,” he added.

    The BSP’s assessment of domestic economic conditions, Espenilla stressed, remains the main consideration in determining monetary policy.

    Analysts have been saying that rate hikes are overdue given rising inflation.

    The Bangko Sentral — after lowering its reverse repurchase rate to 3 percent from 4 percent in May 2016 in the run-up to the adoption of the interest rate corridor system — has since kept the policy rate unchanged.

    “[T]hat’s also one reason why, as part of the policy setttings, we allow exchange rate flexibility,” Espenilla said.

    “We are not married to the idea that the peso is of this value, [that]come hell or high water it must stand at this value. We let it move as part of the policy flexibility that we have built into the economy,” he added.

    The currency is currently trading between P51-52 per dollar, the weakest level in over a decade.

    With regard to inflation, Espenilla said monetary authorities were trying to explain that recent increases would be transitory.

    “[B]ased on our two-year projection we expect it to come back down. So that’s where we are coming from in terms of the manageability of the situation,” he said.

    The central bank expects inflation to hit 4.3 percent this year, breaching the 2.0-4.0 target, before decelerating to 3.4 percent in 2019.

    “We would take a very different view if in our view inflation will accelerate further, let’s say in 2019. That’s not the case right now insofar as the data is concerned,” Espenilla added.

    The Philippine Statistics Authority last week reported that inflation, using 2012 prices as a new base year, had risen to an over three-year high of 3.9 percent in February.

    Using the old 2006 series, inflation accelerated to 4.5 percent during the month.


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