CURRENT monetary policy settings remain appropriate despite some turbulence in local financial markets, the Bangko Sentral ng Pilipinas (BSP) chief said on Friday.
“We have to look at the fundamental drivers and not be too quick to play the blame game,” BSP Governor Nestor A. Espenilla, Jr. said when asked about policy direction in the face of a tumbling stock market and a depreciating peso.
Local stocks have shown weakness for much of this month, so far, with the Philippine Stock Exchange index hitting a one-year low on Thursday before staging a modest recovery on Friday that, nevertheless, did not stop another week-on-week slide.
At the same time, the peso has been trading at the P52 level this month and has been dubbed Asia’s worst-performing currency.
The central bank governor said the BSP does not have to react to these latest developments, adding that markets have the tendency to self-correct.
“[T]he key drivers of equity markets are corporate fundamentals including relative valuation that links potential earnings to share prices,” Mr. Espenilla said in a WhatsApp message to reporters on Friday.
“There is market discipline to this. Corrections happen as a reality check. That’s healthy and makes for sustainability,” he added.
“In my view, the sum of BSP actions remain appropriate for the situation.”
The policy-setting Monetary Board (MB) opted to keep borrowing rates unchanged at 2.5-3.5% during its March 22 policy review, unfazed by accelerating inflation despite analyst observations that the central bank could already be behind the curve as far as interest rate normalization is concerned.
Instead, policy makers cited robust domestic economic activity and little concern over inflation’s pick-up as reasons for keeping policy interest rates steady for now.
‘IN THE RIGHT DIRECTION’
The Monetary Board has said it was ready to “take immediate and appropriate measures” to carry out the BSP’s mandate of price and financial stability, arguing that currently robust economic activity can weather the impact of higher interest rates.
Mr. Espenilla said that the BSP is prepared to raise benchmark interest rates should price increases spread through the economy, but noted that latest inflation expectations show the annual pace of overall price increases still well within 2018’s 2-4% target band.
Latest available Philippine Statistics Authority data show headline inflation staying within target range at 3.8% year-to-date despite March’s 4.3% which pierced that band and was the fastest in at least five years.
Highlights of the March MB meeting which the central bank released on Thursday show monetary authorities then believing first-quarter gross domestic product growth — which the PSA is scheduled to report in the morning of March 10, just hours ahead of the third MB policy review for 2018 — “to be consistent with the government’s target” of 7-8% annually until 2022, when President Rodrigo R. Duterte ends his six-year term.
“We’re satisfied that TDF (term deposit facility) rates have been moving in the right direction, as guided and enabled by our open-market operations. This is having the desired effect on other market rates that in turn help regulate the economy and control inflation,” the BSP chief added.
Several analysts have pointed out that the BSP should already tighten rates to contain inflation and temper rapid credit growth, although the monetary authority has said that the Philippines is far from overheating.
LENDING STANDARDS STEADY
In a separate development, the BSP also reported unchanged lending criteria among Philippine banks in the first quarter.
Universal and commercial banks said they maintained the standards they used in assessing loan applications of both consumers and businesses, according to results of the BSP’s latest Senior Loan Officers’ Survey.
This marks the 36th straight quarter that borrowing standards were kept “broadly unchanged” for both corporate and individual clients, the BSP said, although some reported that they grew more stringent in granting consumer credit.
A total of 30 of 35 big banks responded to the poll.
Around 92.3% of the lenders said did not change criteria in deciding on loan applications filed by companies.
This came as banks had a “steady outlook” for the economy, a stable profile of borrowers and an unchanged risk appetite. This was seen through narrower loan margins, bigger credit lines and simpler collateral requirements.
Some 78.9% of the banks also reported that they used the same standards in deciding on personal loans, reflecting their bullish outlook for consumer activity.
At the same time, “credit standards for housing loans and personal/salary loans tightened due mainly to respondent banks’ reduced tolerance for risk,” the BSP said, noting stricter conditions for home loans and shorter maturities for personal loans.
Most banks said they expect to keep lending standards steady this quarter. — Melissa Luz T. Lopez

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