Top Story

By Bettina Faye V. Roc, Senior Reporter

BSP still focused on inflation

Posted on July 14, 2014

INFLATION REMAINS the Bangko Sentral ng Pilipinas’ (BSP) main policy consideration, its chief said over the weekend, with the US Federal Reserve stance still considered an uncertainty.

“It’s important to understand that it would not be prudent to put the Fed program on a preset course. There are after all too many moving parts in the decision tree,” central bank Governor Amando M. Tetangco, Jr. said in an e-mail.

“This is why at the BSP our actions are primarily guided by how our own inflation path would evolve over our policy horizon,” he added.

“We have a full array of tools at our disposal. We have the monetary policy space to help guide inflation expectations so that our inflation target is not at risk.”

The Fed, in minutes of its June 17-18 meeting released last Thursday, detailed how it planned to ease the world’s biggest economy out of an era of loose monetary policy, indicating that it will end its asset purchases in October and possibly start raising rates by mid-2015.

Mr. Tetangco said the BSP considers the Fed’s actions as a policy-making input only to a certain extent. The US central bank’s decisions, for one, affect global investor sentiment, and thus the flow of capital, he noted.

“These reflect economic growth prospects in the US, and therewith the strength of our trade flows and that of other trading partners. This could also affect international prices of commodities,” Mr. Tetangco said.

He reiterated that consistent with its inflation-targeting framework, the BSP’s focus remains on fulfilling its price and financial stability mandate.

“Our recent runs show that inflation over the policy horizon would still be within the government’s target ranges, albeit elevated, with the full year averages above the midpoint of the target range.”

The central bank wants to keep inflation within 3-5% this year and 2-4% next year. It expects full-year results of 4.4% and 3.7% this year and in 2015, respectively.

“We need to carefully monitor, among others, if the second round effects are intensifying, if geopolitical risks would create heightened volatility in commodity prices (particularly oil), how global investors would rebalance portfolios as this would affect capital flows and domestic bond prices/the peso/dollar rate,” Mr. Tetangco said.

An analyst said the Fed’s future course of action -- at least as mapped out in the meeting’s minutes -- would only broadly impact the Philippines’ prospects as well as the BSP’s own policy settings.

“I think that the recent stance of the BSP will not be affected much by such Fed clarity since the more pressing issues are largely domestic,” Metropolitan Bank & Trust Co. research head Ildemarc C. Bautista said.

“Besides, the said Fed news validates what the market already expects so in general we can safely say that the impact ... is also already embedded in the current stance of the BSP...”

The BSP’s Monetary Board next meets to discuss policy on July 31.

Last June 19, the Board kept overnight borrowing and lending rates at record lows of 3.5% and 5.5%, respectively, with officials noting that inflation, despite rising, remained manageable.