The monetary policy tweaks the central bank implemented last year placed the Philippines in a “good position” now despite the uncertainties ahead of higher interest rates in the US.
“Remember, we took tightening measures last year . . . We increased reserve requirements and rates, those preemptive measures were designed in anticipation of the Fed lift-off,” Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. told reporters on Wednesday.
Last year, the policy-setting Monetary Board raised the key rates by 25 basis points (bps) each —in July and September which brought the rates at 4 percent for overnight borrowing, and 6 percent for overnight lending.
The board also increased the interest rates on special deposit accounts to 2.50 percent.
The reserve requirement ratio for banks, on the other hand, was raised by 2 percentage points to 20 percent.
“That was one of the things. Those [measures]haven’t been unwound, and they’re still there. We’re in a good position,” Tetangco said.
At this point in time, the policy stance remains appropriate on the back of stable credit condition, firm domestic demand, and within-target inflation, the central bank chief noted.
Tetangco said credit in the Philippines still growing at a reasonable pace, noting that there’s ample liquidity in the system.
BSP data showed bank lending by commercial banks increased by 14.5 percent in May, excluding reverse repurchase placements (RRPs) or money lent to the central bank.
Domestic liquidity as measured by M3 or the total amount of money circulating within the financial system rose by 9.3 percent year-on-year to P7.6 trillion in May.
“On liquidity, I have to relate it to what’s happening to capital flows. If there are outflows as a result of the lift-off, that would contract domestic liquidity. We’ll see if that would require a response,” Tetangco said.
Firm domestic demand also gave the Monetary Board the assurance that there was no need for additional policy tweaks.
Tetangco reiterated that the risk of deflation is minimal as forecast still indicates that average inflation for 2015 and 2016 will fall within the 2 percent to 4 percent government target, and even closer to the lower end.
The BSP projects inflation for full-year 2015 at 2.1 percent and 2.5 percent for next year.