Inflation is monetary agency’s focus
By Paolo G. Montecillo
Philippine Daily Inquirer
7:35 pm | Sunday, February 2nd, 2014
FILE PHOTO
The Bangko Sentral ng Pilipinas (BSP) has hinted at keeping its benchmark interest rates on hold ahead of the first policy meeting of the year to avoid causing more volatility in financial markets.
This comes amid recent rate adjustments by other emerging market policymakers who have sought to defend their currencies, which have weakened following the fallout from the US Federal Reserve’s withdrawal of monetary stimulus.
“The way we see it, the current volatility falling from the Fed action is in the financial markets in emerging markets. For this, policy rate changes are not necessarily the most appropriate response at this time,” Tetangco said. “Tweaking policy rates to address short-term financial market volatility could likely create unintended consequences, and heighten volatility even more.”
Last week, the US Fed announced a second $10-billion reduction in its bond-buying program, which was introduced in 2009 to prop up the American economy.
Starting February, the Fed’s bond-buying, which is being done to infuse cash into the American economy through the purchases of mortgage-backed securities and US treasuries, will slow down to a rate of $65 billion from $85 billion.
The Fed’s move was affirmed by data released late last week showing that the US economy grew by a better-than-expected 3.2 percent in the fourth quarter of 2013, better than the 1.3-percent expansion of advanced markets.
With less cash being infused by the Fed into financial markets, fund managers have been dumping assets from emerging markets like the Philippines, sending interest rates higher, making currencies weaker and driving stock prices lower.
Tetangco said the Fed’s decision was just one of the factors to be considered at the BSP’s Monetary Board meeting this Thursday. The BSP’s primary focus, Tetangco said, would be the outlook on domestic inflation.
The BSP sees inflation accelerating to 4.5 percent this year from 3 percent in 2013. The forecast for 2014 is still within, albeit near the top end, of the BSP’s target range of 3 to 5 percent.
The BSP’s benchmark overnight borrowing and lending rates stand at record lows of 3.5 and 5.5 percent, respectively.
Once fund managers calm down, the recovery of the US economy should lead to higher demand for Philippine exports of goods and services.
“We see the Fed move as an affirmation that growth in the US is gaining traction. So this should be, over the medium- to long-term, positive for our own growth story,” he said.
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Tags: Bangko Sentral ng Pilipinas , Business , economy , Inflation , News , US Federal Reserve
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