The Philippines’ monetary policy does not have to move in sync with any action that may be taken by the US Federal Reserve in the near term, although the monetary authorities remain watchful of current external market developments, the central bank said.
Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr., made this statement after the US Federal Open Market Committee (FOMC) released the minutes of its January 31 to February 1 meeting.
In that meeting, the US central bankers agreed on the need to increase the key US lending rate “fairly soon,” although they differed on the timing of the rate hike amid uncertainty over President Donald Trump’s tax and spending policies, the minutes showed.
BSP Governor Amando Tetangco Jr. said in a text message to reporters on Thursday: “The Fed’s judgement on the timing of its next move, as mentioned in the statement, will be based on forthcoming data on jobs and inflation. As is our practice, we include new information from the Fed signals in our scenario building.”
Tetangco stressed that the BSP looks, in particular, at the potential impact of any such Fed move on the financial markets in the near term.
The BSP is also watchful of its impact on bank portfolios—especially the interest rate-sensitive bank balance sheet accounts—as well as banks’ capacity to lend to productive sectors of the economy, in the medium term, he added.
“In other words, it’s not a linear analysis, not a one-to-one correspondence. This is why we have always said that, while we are mindful of the Fed, we do not necessarily have to move in sync with it,” Tetangco pointed out.
Details of the Fed minutes
Agence France-Presse reported earlier in the day that the “hawks” in the Federal Reserve were more concerned
about the threat of rising inflation, especially if the tax cuts and spending were fueling the economy. The “doves,” on the other hand, warn of the risk of raising interest rates based on policies that have not been announced, and whose implications cannot yet be measured, the report said.
The Fed officials were quoted as saying in the report that their outlook for the economy and interest rates had not changed much since December, when they indicated three rate hikes were likely this year.
BSP seen raising rates
The Philippine central bank – after lowering its RRP rate to 3 percent from 4 percent on May 16 in the runup to adopting an interest rate corridor system on June 3 last year – kept its key policy rate unchanged at its first meeting for 2017.
The Monetary Board also held steady the corresponding rates for overnight lending and deposit facilities at 3.5 percent and 2.5 percent, respectively. It also kept the reserve requirement ratio (RRR) unchanged at 20 percent.
But private financial institutions all expect the BSP to raise its key interest rates this year.
Standard & Poor’s (S&P) Global Ratings has said pressure for such move will come mainly from the country’s robust gross domestic product (GDP) growth and rising commodity prices (See related Times report ‘S&P sees central bank raising rates this year’ on page B1 Feb 23, 2017).
German lender Deutsche Bank said that a peso under pressure from a potential double-deficit in the fiscal and current account balances would be prompts the central bank could not afford to ignore against the backdrop of rising inflation and domestic demand.
Fitch-owned BMI Research also expects a likely tightening of monetary policy by the central bank before the end of 2017 as inflationary pressures rise, while it attempts to stem capital outflows amid a more aggressive rate hike cycle in the United States.
ANZ Research had also said the BSP would widen its interest rate corridor by the third quarter of 2017, when inflation is expected to accelerate.