By Melissa Luz T. Lopez
Senior Reporter

DOMESTIC CONDITIONS affirm the central bank’s decision last month to keep interest rates steady despite rising global yields, with the Bangko Sentral ng Pilipinas (BSP) chief saying monetary authorities do not feel pressured to tweak policy settings given current conditions.

“There is limited evidence of overheating or the buildup of financial stability risks based on an assessment of inflation dynamics as well as output, liquidity, and credit conditions over the policy horizon,” BSP Governor Nestor A. Espenilla, Jr. said in a recent e-mail interview.

Last week, Fitch Group’s BMI Research flagged “rising” credit threats to financial stability, saying that a record-low interest rate environment at a time of robust economic growth usually triggers increased leverage and “malinvestment.”

Increased lending, in turn, is expected to trigger a deterioration of asset quality as banks keep on approving new loans, the research unit added.

Bank lending expanded by 19.2% in November, the slowest pace since June 2017. This brought outstanding loans granted by banks to P6.961 trillion, according to central bank data.

Even the International Monetary Fund has flagged fast credit growth as a key risk due to potential overheating, although overall prospects look upbeat.

The central bank considers credit risk as one of the biggest sources of risk this year, even as it assures that it has enough tools to address such concerns.

“The Bangko Sentral has measures in place to mitigate the risks arising from banks’ exposure to different economic sectors, particularly the real estate sector, and to ensure that the same are within manageable levels,” Mr. Espenilla added, pointing out that loan quality remained “satisfactory” despite double-digit credit expansion.

The sustained double-digit rise of bank lending has benefited “diversified” economic activities, the central bank chief said, and property prices remain “broadly in line” with fundamentals.

Domestic inflation — which averaged 3.2% in 2017 to settle within an official 2-4% target — also gives the BSP room to leave borrowing rates unchanged.

Economic growth averaged 6.7% in the nine months to September 2017, well within the 6.5-7.5% goal. Strong manufacturing performance coupled by robust private household spending and increased investments on public infrastructure show that overall growth prospects are intact, Mr. Espenilla added.

Favorable domestic conditions allow the BSP to stand firm despite an evolving overseas environment.

“The Monetary Board has considered the potential impact of the recent monetary policy adjustment in the United States on global financial conditions, noting that keeping monetary policy settings steady at this juncture would allow the BSP some room to continue to assess evolving global economic conditions and calibrate its policy tools as appropriate based on the latest assessment of inflation dynamics and risks to the inflation outlook,” said the BSP chief.

The US Federal Reserve introduced three rate hikes in 2017 and bared plans for another three increases this year as part of its normalization tack.

Despite this, the BSP has stood pat on its monetary policy stance since September 2014.

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