By www.CentralBankNews.info The Philippine central bank maintained its policy rates due to “a benign inflation environment” with inflation forecast to remain in line with the central bank’s target through 2015.
The Central Bank of the Philippines (BSP) has held its policy rate steady at 3.50 percent since October 2012 and also maintained its other rates, including the overnight lending, or repurchase facility rate at 5.50 percent and the rates on its special deposit accounts (SDAs), which were cut in April to discourage the inflow of capital.
“The Monetary Board noted that while global economic conditions remain challenging, prospects for domestic activity remain robust, supported by buoyant domestic demand and favorable consumer and business sentiment,” the BSP said.
The Philippine inflation rate rose to 2.7 percent in September from 2.1 percent in August but the bank said the risk to inflation remains unchanged with most lending going to productive sectors of the economy, helping sustain the capacity of the economy to absorb and thus moderate price pressures.
The bank said its latest forecast for inflation indicate that the path remains in line with the central bank’s 2013/2014 target range of 4.0 percent, plus/minus one percentage point, and the 2015 target range of 3.0 percent, plus/minus one percentage point.
Gross Domestic Product in the Philippines rose by 1.4 percent in the second quarter from the first for annual growth of 7.5 percent, down from 7.7 percent.
The decision to maintain rates was widely expected and economist expect rates to remain steady the rest of the year.
BANGKO Sentral ng Pilipinas (BSP) officials and several market players expect another “no-change Thursday” in the central bank’s upcoming policy meeting this week, as the country’s inflation remains on the lower end of the government’s target range.
The BSP, the Philippines’s monetary authority, has been maintaining its key policy rates on hold for three consecutive monetary-policy meetings. The Monetary Board (MB) meets every six weeks to discuss and fine-tune, if needed, the country’s policy rates to support price stability and economic growth. The last time the central bank made an adjustment was on April 25 this year, when the last cut to the special deposit account (SDA) facility was made.
On Thursday, October 24, the MB will meet to assess global and domestic economic developments that may have affected the Philippine economic landscape and adjust policy settings, if deemed necessary, to better ride out these developments. An unchanged policy stance means these policy settings in place are still appropriate, given the current global and domestic economic backdrop.
Lead economists from the top banks in the country forecast that the BSP would keep its policy rates steady in its next policy meeting, as well as for the rest of the year.
In separate interviews, Banco de Oro (BDO) Chief Market Strategist Jonathan Ravelas, Bank of the Philippine Islands (BPI) Lead Economist Emilio Neri Jr., First Metro Investment Corp. (FMIC) Treasury Group Senior Vice President Reynaldo Montalbo Jr. and Security Bank Economist Patrick Ella were all in consensus that the BSP would keep its key policy rates, and is only seen to adjust them in the first quarter of next year.
All the economists polled cited the benign inflation for the first nine months of the year as the main reason the BSP would keep its rates steady.
“In keeping the policy rates, the BSP must be considering that inflation has remained benign and will most likely be within their target for the year,” FMIC’s Montalbo said.
The country’s inflation rate hit 2.7 percent in September after sinking to a four-year low in August. Average inflation for January to September this year is at 2.8 percent, still slightly below the government’s target of 3 percent to 5 percent for this year and for the next.
“For one thing, the lack of demand-driven inflation pressures [is a major consideration in the policy stance]. So far, the only factor ticking up inflation has been the recent weather disturbances in August, September and early this month, which should see inflation inch up to 3 percent,” Security Bank’s Ella said.
“While headline inflation is probably accelerating at a much faster pace than the BSP has anticipated, the full year 2013 inflation will still well within the BSP target. Inflation is not rising fast enough to breach the BSP’s 2014 target either to justify any tightening move next Thursday,” BPI’s Neri said.
In terms of global developments, FMIC said the MB would also consider the situation of the US debt issues and the timing of its asset purchase program tapering in coming up with a policy stance.
“Also, they will be waiting for the US situation to clear up on the pace of the tapering of quantitative easing and the next battle between the White House and Congress in January and February 2014,” FMIC’s Montalbo added.
Felipe Medalla, a member of the Monetary Board, also said he sees no reason to adjust policy settings this year as inflation remains to be benign.
Medalla and the economists forecast a change in the policy stance in the first quarter next year, after global and domestic developments have already transcribed and have already been assessed by the BSP.
“By that time inflation would have adjusted and we can know more of the decision of the Federal Reserve regarding their bond purchase, if indeed they will pursue a tapering,” Security Bank’s Ella said. “In fact, tapering at this point—fresh from a government shutdown and tense debt-ceiling negotiations in the US—has indeed impacted both business and consumer confidence of Americans. Hence, the US Fed will take a few months to reassess if tapering is warranted and late first quarter of 2014 is a likely period for some movement on this issue.”
However, for BPI’s Neri, the current monetary policy would still be appropriate for the entire year next year if the BSP revised its 2015 inflation target.
“We are concerned that the 2015 target is too low 2 percent to 4 percent and needs to be revised to avoid significant financial market instability by mid- to late-2014. Our recommendation to the BSP that the 2015 inflation target be reset to 3 percent to 5 percent could help avoid the potentially destabilizing impact of abrupt policy adjustments to meet a somewhat unrealistic target,” Neri said.
oct 3, bbg, The Philippines will withstand pressure stemming from the impending reduction of the Federal Reserve’s stimulus with growth exceeding 7 percent this year, central bank Governor Amando Tetangco said.
Bangko Sentral ng Pilipinas will probably keep interest rates steady this year and next, “barring any unforeseen shocks,” Tetangco, 60, said in an interview in his office in Manila yesterday. Inflation will fall within the central bank’s target range for a fifth year this year, he said.
The Asian Development Bank yesterday raised its gross domestic product growth estimate for the Philippines this year to 7 percent, while cutting its prediction for developing Asia. Slowing growth in China and India is compounded by concern that the unwinding of the Fed stimulus will drive investors away from emerging nations and spur volatility in financial markets.
“What we have observed is that the impact on us has mainly been in terms of greater financial market volatility,” Tetangco said. “The economy hasn’t been affected much. Domestic demand is the real driver. We’re less dependent on the performance of other countries or the rest of the world, unlike our neighbors.”
The peso climbed 0.7 percent, the most in Southeast Asia today after the Malaysian ringgit. The Philippine Stock Exchange Index (PCOMP) added 0.4 percent to 6,387.65 at the close in Manila, the highest since Sept. 26.
Benign Inflation
Inflation eased to a four-year low in August, with consumer prices rising 2.1 percent from a year earlier.
Policy makers have held the benchmark interest rate at a record-low 3.5 percent since cutting it a year ago. The central bank targets consumer price gains to average 3 percent to 5 percent in 2013 and 2014.
Philippine GDP (PHGDPYOY) rose 7.5 percent in the second quarter from a year earlier, matching China’s pace and higher than the government target of 6 percent to 7 percent for the year. President Benigno Aquino yesterday said the nation can achieve 7 percent economic growth this year.
“It’s likely the 7 percent upper end of the government target will be exceeded,” Tetangco said.
The government’s growth forecast for next year is 6.5 percent to 7.5 percent, said Tetangco, who began working at the central bank in 1974 as a statistician at the economic research department and rose to governor in 2005.
Fed Tapering
The Philippines is well-placed to withstand any volatility, with its current-account surplus and high foreign exchange reserves, the Asian Development Bank said yesterday. Authorities will need to keep a close eye on credit conditions, with a possibility that the central bank will tighten monetary policy next year, the ADB said.
The country will be able to “adjust smoothly” to an eventual tapering of bond purchases by the Fed, the International Monetary Fund said last month.
Central bank Deputy Governor Diwa Guinigundo said last month that the nation is prepared for a possible tapering of the Fed’s record stimulus with policy measures to deal with capital outflows. The measures may include boosting dollar and peso liquidity, careful surveillance of risk, use of forward guidance, tapping currency-swap agreements, and possible tightening of monetary policy, he said.
CIMB Group Holdings Bhd. (CIMB) Chief Executive Officer Nazir Razak said investors are starting to differentiate Asia’s emerging markets after the sell-down in the past two months on concerns of the Fed’s tapering.
Eventual Tapering
“For the near-term, we’re probably going to see a little bit of upturn in the regional markets,” Nazir, whose bank led Southeast Asia’s stock and bond sales by volume this year, said in response to questions after a speech in Singapore yesterday. “But in the long-term, one needs to prepare for the eventuality of tapering.”
In the Philippines, Aquino is raising spending to a record this year and seeking more than $17 billion of investment in roads and airports. Fitch Ratings and Standard and Poor’s awarded the Philippines its first investment-grade scores earlier this year. Moody’s Investors Service upgraded its rating on the Philippines today, completing the country’s ascent to an investment rank.
“We have room to continue to support the economy given the benign inflation,” Tetangco said in the interview. “Thus we’ve been able to maintain interest rates at historically low levels without fanning inflation.
BSP seen keeping interest rates low
Monetary agency monitoring 3 major risks
By Paolo G. Montecillo
Philippine Daily Inquirer
BSP Governor Amando M. Tetangco Jr. FILE PHOTO
The Bangko Sentral ng Pilipinas (BSP) will likely keep interest rates at record lows until yearend, barring any surprises that may lead to instability in consumer prices or weaker economic growth.
BSP Governor Amando M. Tetangco Jr., however, stressed that the policymaking Monetary Board has enough tools in its arsenal to counter any external forces that may threaten to knock the localeconomy
off its stable footing.
off its stable footing.“Barring any unforeseen threats, I think we have room to keep policy rates steady for the balance of the year,” Tetangco told financial
market players this week. “Should market reaction/sentiment lead to a loss of overall business confidence or a dis-anchoring of inflation expectations, the BSP has the room to adjust policy interest rates or other monetary policy tools, as appropriate.”
market players this week. “Should market reaction/sentiment lead to a loss of overall business confidence or a dis-anchoring of inflation expectations, the BSP has the room to adjust policy interest rates or other monetary policy tools, as appropriate.”Tetangco was speaking at a closed-door joint assembly of the Fund Managers Association of the Philippines (FMAP), the National Association of Securities Broker Salesmen Inc. (NASBI), Trust Officers Association of the Philippines (TOAP), the Investment House Association of the Philippines, the Money Market Association of the Philippines and the Association Cambiste Internationale (ACI)-Philippines.
Association of the Philippines, the Money Market Association of the Philippines and the Association Cambiste Internationale (ACI)-Philippines.The BSP’s benchmark overnight borrowing and lending rates stand at record lows of 3.5 and 5.5 percent, respectively.
In his speech, Tetangco noted three major risks to the BSP’s monetary policy settings, namely, the uncertainty of easy money policies in the United States, high liquidity growth locally and economic conditions overseas.
money policies in the United States, high liquidity growth locally and economic conditions overseas.He said the schedule of the US Federal Reserve’s tapering of its bond-buying program could lead to one of two situations: Excessive exuberance that could inflate asset prices or disappointment that could bring prices crashing.
Tetangco said the BSP would respond by further tweaking existing macroprudential measures or release new ones, as appropriate to target problem asset areas.
Meanwhile, he said market players need not be concerned over what seems to be excess liquidity entering the system as funds from the central bank’s Special Deposit Accounts (SDA) are released following restrictions on individual investors parking their funds in facility.
Tetangco pointed out that investors who used to put their funds in SDAs usually have low-risk appetites. Hence, once these funds exit SDAs, these would likely be diverted to other low-risk asset classes—reducing the possibility of the formation of asset bubbles.
Tetangco said the most uncertain risk the country faced were economic conditions in major trading partners that might affect growth locally.
Apart from the country’s trade ties with Europe, China and Japan, the Philippines may also see a slowdown in growth in remittances from migrant workers based in those markets as well as fewer international tourists.
Tetangco said that at the moment, the consensus was that Europe could possibly keep its growth rate stable, Japan would calibrate its stimulus, learning from the experience of the Fed on the problems of exit from unconventional monetary policy, and China would continue to grow at a steadier pace.
, and China would continue to grow at a steadier pace.“We are monitoring these economies, but we are also mindful that our own domestic demand conditions, particularly consumption and capital formation, remain quite strong,” Tetangco said.
ept 21 |
(Reuters) – The Philippine central bank is seeking a a capital increase of 150 billion pesos ($3.5 billion) as an additional buffer for warding off increasing risks locally and globally, a move that is part of Manila’s priority legislation, a senior official said on Saturday.
The Bangko Sentral ng Pilipinas (BSP) also asked for tax exemptions to further boost its finances in the bill submitted to Congress this week, said Vicente Aquino, deputy BSP governor for resource management, as the monetary authority continued to post losses for more than three years running.
“What image will the Philippines have if the BSP is financially weak? It will not be able to perform its constitutional and legal mandate to promote price stability,” Aquino told reporters, adding the capital hike will enhance the central bank’s administrative and fiscal autonomy.
The BSP recorded a net loss of 19.2 billion pesos in the first half, substantially narrower than a net loss of nearly 50 billion pesos in the same period a year earlier, after it introduced measures aimed at narrowing access to its short-term special deposit account (SDA) facility that attracted huge funds and contributed to its financial losses.
As of end August, money parked with the central bank’s SDA window was 1.6 trillion pesos, down from a record 1.98 trillion pesos posted in mid-April.
Aquino said the BSP was seeking a tax exemption to preserve its capital and allow it to pay higherdividends to the government, adding central banks in other countries were tax exempt.
The central bank was given an initial 50-billion-peso capital after its 1993 reorganisation from the old, debt-laden Central Bank of the Philippines, but the government still has to deliver the remaining remaining balance of 10 billion pesos to complete the amount.
The government gave an initial 10 billion pesos to the BSP upon its 1993 creation, with the second capital infusion of the same amount coming only 18 years after or in 2011.
In December last year, the government infused another 20 billion pesos, as the BSP posted a record net loss of 95.4 billion pesos in 2012, its third straight year of being in the red. ($1 = 43.05 Philippine pesos) (Reporting by Rosemarie Francisco; Editing by Ron
sep 20
MANILA – Expect key Philippine interest rates to stay where they are – at record lows, that is – after the US Federal Reserve decided to retain its economic stimulus, a top Bangko Sentral ng Pilipinas (BSP) official said today.
“If you have monetary and fiscal space — the Philippines is one of them, for example — then emerging markets can simply maintain where they are right now,” BSP Deputy Governor Diwa C. Guinigundo said on the sidelines of the central bank’s briefing on the country’s second-quarter balance of payments (BOP) account.
The BSP has kept its policy rates at record lows of 3.5 percent and 5.5 percent for the overnight borrowing and lending windows since the start of the year. The yields on its special deposit accounts likewise are at a record low of two percent across the board.
Guinigundo said a “reflow of capital can take place as the market continues to consolidate its views about the recent decision of the US Fed.”
“The regime of interest rates will continue in the US. The investors can rethink their portfolio choices and start reconsidering going back to emerging markets including the Philippines. That means that easing of risk aversion against [emerging markets] will probably result in the reassessment of macroeconomic fundamentals of [emerging markets], including the Philippines,” he said.
And in this reassessment, the Philippines stands out as its macroeconomic fundamentals remain sound and strong, Guinigundo said, adding that, “We are growing and the price pressures are very limited.”
The Philippine economy grew 7.6 percent in the first half of the year, while consumer price increases averaged 2.8 percent in the first eight months, or well below the BSP’s target range of 3-5 percent for the entire 2013.
Guinigundo said the BOP – a summary of the country’s economic transactions with the rest of the world — remains in surplus at $3.359 billion in the first eight months of this year. A surplus means the country earned more dollars than it gave up, thus helping build up its dollar reserve, a buffer against financial shocks.
Guinigundo also cited the Philippines’ improving “debt dynamics,” referring to the country’s foreign debt as a percentage of the economy. This is measured using the external debt-to-GDP ratio, which has dropped to 18.3 percent last June from 21.8 percent in the same month last year.
This ratio has gone down since 2003, thus posing less of a burden for the Philippines when times get tough. GDP or gross domestic product refers to the amount of final goods and services produced in the country, and as such is a measure of economic performance.
Having said the above, Guinigundo said the US Fed decision to put off the end to its stimulus only allows other countries “with little space to sustain recovery” to buy time.
“The uncertainty remains because the actual timing of tapering has been postponed in a few more months,” he said.
“We should also emphasize the fact that the US Fed maintained its forward guidance of the possibility of a tapering of quantitative measures in the future. And a possible start of rate increase in late 2015,” he added.
sept 17 ONETARY authorities are prepared to adjust policy settings and deploy new measures to address risks to the economy, the Bangko Sentral ng Pilipinas (BSP) chief yesterday said.
“The BSP stands ready to make refinements to existing macroprudential measures or deploy new ones as necessary,” central bank Governor Amando M. Tetangco, Jr. said at a briefing on the economy.
Uncertainties over the timing and pace of a US Federal Reserve tapering have caused emerging markets to stumble. With the Fed expected to finally begin scaling back this week, markets are again expected to react.
“Our approach is to use a set of measures to address the challenges we face particularly from significant flows of capital … that if not managed properly can lead to asset price bubbles,” Mr. Tetangco explained.
The central bank’s policy-setting Monetary Board last month kept overnight borrowing and lending rates at record lows of 3.5% and 5.5%. Special deposit account rates were also maintained at 2% across all tenors and inflation outlooks were adjusted downwards. — ARRG
Uncertainties over the timing and pace of a US Federal Reserve tapering have caused emerging markets to stumble. With the Fed expected to finally begin scaling back this week, markets are again expected to react.
“Our approach is to use a set of measures to address the challenges we face particularly from significant flows of capital … that if not managed properly can lead to asset price bubbles,” Mr. Tetangco explained.
The central bank’s policy-setting Monetary Board last month kept overnight borrowing and lending rates at record lows of 3.5% and 5.5%. Special deposit account rates were also maintained at 2% across all tenors and inflation outlooks were adjusted downwards. — ARRG
