RATE HIKE WILL ‘DEPEND ON DATA’

As the US Federal Reserve is seen to increase its rates this month, BSP Governor Amando Tetangco says their key rates will still depend on data.

Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. on Monday said any adjustment in the central bank’s key rates will remain data dependent despite higher probability of a Federal Reserve rate hike this month.

In a message to reporters Monday, the central bank chief explained that “the market has been slowly adjusting to the March hike as seen in auction results and even on the peso movements.”

For one, the local currency ended last week at its fresh more than 11-year low of 50.40 to a dollar, which is also its opening level Monday.

Also, both the tenders and bid coverage ratios of the central bank’s term deposit facility (TDF) rose Wednesday last week and monetary officials attributed this to market’s current preference for short-term investments.

Tetangco said that “while the anticipatory moves of the market could pave the way for a smoother price action should the Fed actually hike in their March meeting, there might still be volatility if the Fed disappoints.”

Thus, he said the BSP will “monitor market reaction and allow for the market to take some pressure off positions they have built but we will not hesitate to come in should moves be excessive.”

“We will also refresh our inflation forecasts for the Fed action,” he said.

The BSP’s policy-making Monetary Board (MB), during its rate setting meet last Feb. 9, revised upwards the central bank’s inflation forecasts for 2017 and 2018 after noting the risks from oil price increases, weaker peso and increase in minimum wage in June 2016.

This year’s figure was raised to 3.5 percent from 3.3 percent last December while next year’s projection was raised to 3.1 percent from three percent.

Rate of price increases trekked back to within the government’s two to four percent target range for 2016-20 starting in September 2016 when it rose to 2.3 percent from the previous month’s 1.8 percent as oil prices continue to climb.

Tetangco pointed out that “because the market may have already priced in the March Fed move we may have no need to make adjustments to policy for the moment.”

“But as I said we remain data dependent and take into consideration latest and expected developments in our assessment,” he added. /