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BSP found most predictable
Southeast Asian central bank

Posted on May 11, 2015

THE BANGKO SENTRAL ng Pilipinas (BSP) has so far been the most successful among four central banks in Southeast Asia in communicating policy to the market, enabling the latter to better anticipate conditions ahead, according to American financial giant Goldman Sachs Group, Inc.

In a May 7 note to clients, titled “ASEAN: How predictable are the central banks?”, the research arm of Goldman Sachs said market participants, since January 2009, have met with fewer surprises from the BSP than from the Bank Indonesia (BI), Bank Negara Malaysia (BNM), and the Bank of Thailand (BoT). “Since 2009, markets have correctly anticipated more than 80% of the outcomes of the MPC (monetary policy committee) meetings of BI, BNM and BoT, and over 90% in the case of BSP,” the note read.

It noted that “[s]urprise policy outcomes have been evenly distributed between hawkish and dovish surprises, with marginally more hawkish surprises for Indonesia and Malaysia and the fewest for the Philippines.” All four central banks in the region are mandated to ensure stability of their respective financial systems, with BI, the BSP, and the BoT adopting an inflation-targeting framework since July 2005, January 2002, and May 2000, respectively.

“[L]ong-run credibility hinges on how well the private sector understands central banks’ monetary policy objectives and the frameworks that are put in place to achieve those objectives,” the note read.

“The corollary is that a credible central bank’s policy decisions should be predictable by markets.”

The global investment bank noted that market players correctly predicted the outcome of 94% of BSP’s 52 policy meetings since January 2009, compared to 85% of BI’s 75 meetings, 84% of BoT’s 50 and 83% of BNM’s 40.

And as governors of BoT and BNM -- Prasarn Trairatvorakul and Tan Sri Dato’ Sri Dr. Zeti Akhtar Aziz -- are due to end their tenures in September 2015 and May 2016, respectively, the note said “[c]lose attention should be paid to the backgrounds of potential candidates for the posts, including their professional experiences and political affiliations, in order to ascertain their possible views on key monetary policy issues, particularly on price stability and growth.” BSP Governor Amando M. Tetangco, Jr. will step down in 2017 after serving two six-year terms since July 2005.

The central bank’s Monetary Board is scheduled to meet for its third rate review this year on Thursday, when it is widely expected to keep monetary policy steady anew.

The BSP last March 26 left its monetary policy untouched for the fourth time in a row in the face of a manageable inflation environment and strong domestic activity. Overnight borrowing and lending rates were kept at 4.0% and 6.0%, respectively; special deposit account rates were maintained at 2.50%, while banks’ reserve requirement ratios were left unchanged as well.

The BSP’s decision to keep policy steady broke ranks with a number of its peers that have slashed borrowing costs since the year began to ward off deflationary pressures and spur growth. -- Daryll Edisonn D. Saclag