BSP sees continued rebalancing of flows, welcomes China rate cut

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. yesterday said he still sees rebalancing of money flows both to the US and emerging market economies (EMEs).

“In the near-term, we may see some rebalancing of flows toward US assets as well as to EMEs that have strong macroeconomic fundamentals,” commented Tetangco. “We will continue to monitor developments, to see if there is need to adjust (the) stance of policy.”

Tetangco also said China’s easing monetary stance should spread a level of confidence to the markets.

“To the extent the moves of the Chinese authorities would ease fears of an abrupt slowdown in Chinese economic growth and support Chinese corporate balance sheets, these should be good for global market confidence,” he said.

Tetangco added: “Although markets will continue to look for the necessary structural reforms that would sustain domestic demand and the other sources of growth of the Chinese economy.

Before the weekend, the People’s Bank of China cut rates anew – its sixth this year – after the government announced a 6.9 percent growth in its economy for the third quarter.

In the meantime, the central bank’s Monetary Board in its last policy meeting in September, left key overnight rates unchanged since inflation continue to be benign and they think economic growth momentum is sustainable, giving policy stance “ample room” to keep current stance.

The BSP has kept its benchmark interest rate steady at four percent for eight straight meetings. It also kept its overnight lending rate at six percent.

Despite the successive low inflation outturns in recent months, inflation is projected to return gradually to a path consistent with the inflation target for 2016-2017.

For this year, the BSP recast its inflation forecast downward to 1.6 percent from an earlier estimate of 1.8 percent. For 2016, however, it raised projections to 2.6 percent from 2.5 percent earlier. For the first eight months, inflation averaged 1.7 percent.

The BSP also continues to assess what it has been noting previously that there is no need to change policy settings at this time because of the weakness in the global economy and the continuing uncertainty in the global financial markets.

Tetangco said earlier that the Monetary Board is “of the view that domestic demand conditions remain firm, supported by buoyant business and consumer sentiment and ample domestic liquidity.”