No need to change policy settings yet – Tetangco
Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. yesterday said there is no pressing need to change monetary policy settings at this time, and reconfirms the BSP’s focus on the US Federal Reserve’s actions rather than being distracted by China’s latest rates’ cut.
“Given the lag of monetary policy, we may not need to adjust settings as yet” – was Tetangco’s comments after the People’s Bank of China slashed key rates for the fifth time since November 2014, to shore up its flagging economy.
“Unless, among others, (the) El Niño intensifies or global growth slows significantly,” Tetangco added.
The BSP chief, one of the world’s top central bankers according to Global Finance Magazine of New York, said that at the moment, any moves that major central banks will make “spark” and only serve to heighten financial market volatility.
“In our case, while we’ve seen volatility in the peso and stock markets, these have been somewhat in line with the region. (As such) we are watchful that moves in the peso are not excessive, checking to see there is real demand behind the moves,” Tetangco said.
The BSP will decide on September 24, its sixth Monetary Board policy meeting, if adjustments are warranted. “We will need more data to see if there is need to support demand or manage inflation expectations,” he added.
The last time the BSP adjusted overnight rates – which was to increase both borrowing and lending rate by 25 basis points – was September last year. The rates are currently at four percent for reverse repurchase and six percent for repurchase facility.
There is a 12-15 month typical lag time before a policy change takes effect, this is why the central bank needs to be as forward-looking and as pre-emptive as possible.
Tetangco has assured the local markets time and time again of the appropriateness of monetary policy stance.
“Analysts think the actions of Chinese authorities may delay Fed action. But the Fed may have considerations that we don’t see or appreciate,” he said.
Aside from rates’ adjustment, the BSP has other tools in its arsenal to ensure a balance between policy stance and economic growth, and inflation with liquidity growth. These tools include tweaking banks’ reserve requirements and open market facilities such as special deposit accounts or SDAs to control and manage liquidity, first and foremost.
“While remaining sensitive to signals from the Fed, it is best to make sure we have the tools in place to shield our own markets from near-term shocks,” Tetangco emphasized. “It is important not to be distracted from the medium-term reform agenda.”
In a research note yesterday, ING
Bank Manila senior economist Joey Cuyegkeng said that as long as the peso “moves in line with Asian currencies” he expects the central bank to keep rates for the entire 2015.
Cuyegkeng also sees the peso averaging at 44.80 for the year which is within the government’s exchange rate assumption of 43- 46 for 2015 and 2016.
“We had revised our year-end peso forecast to 46.50 last week from 45.50 (but) we cannot sweep aside the possibility of further revisions to the weaker side,” he said, adding that Asian currencies are still looking for the bottom of the weakening move.
“Without major global central banks’ actions to address the main sources of emerging markets’ (EM) risk aversion and prevent further currency contagion and intensify EM debt and economic growth risks, Asian currencies and the peso would likely remain on the defensive,” Cuyegkeng cautioned. The peso, in his view, will continue to test 47 in the near term.