No need to adjust BSP policy stance – Tetangco

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. yesterday said they may not need to tweak interest rates since the market has already factored in a hike in US rates this month.

The US Federal Reserve has announced its intention to adjust its monetary policy stance soon, very possibly when they meet on March 15/16.

Tetangco said the BSP would however review their inflation forecasts for the year given the possibility of a US rate hike.

“We may have no need to make adjustments to policy for the moment," he said. This is because the market has already priced in a rate increase by the US Fed.

“As I said, we remain data dependent and take into consideration latest and expected developments in our assessment," he added.

The BSP will have its own policy meeting on March 23.

"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," according to the BSP chief. He said they would 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.”

Tetangco has often repeated that that the BSP – while closely monitoring the US Fed actions – will not necessarily follow a US rate adjustment.

“We have always said that while we are mindful of the Fed, we do not necessarily have to move in sync with it,” he said earlier.

During its last policy meeting, the BSP maintained the overnight borrowing rate at three percent and the lending rate at 3.5 percent.

While still looking at a manageable inflation path, the BSP said it sees average inflation of 3.5 percent for this year and 3.1 percent for 2018. The 2017 and 2018 forecasts are higher than previous estimates of 3.3 percent and three percent. The inflation target band is two percent to four percent.

The BSP action is based on assessment that while inflation is rising because of increases in food and oil prices, the baseline inflation path remains with the target band for 2017 and 2018.

Consumer inflation in the Philippines likely quickened to the highest in 27 months in February, mainly due to increases in energy prices and transport fares, but is unlikely to prompt any rate increases from the central bank, a Reuters poll showed.

The median forecast in a poll of 11 economists was for the consumer price index to have risen 3.3 percent last month from a year earlier, faster than the January reading of 2.7 percent.

A weaker Philippine peso, which drives up the costs of imports including oil, could keep inflation in the 3-4 percent range in coming months, some economists said.

The peso hit a more than 10-year low versus the dollar on Friday after a series of comments from US Federal Reserve officials last week increased expectations for a Fed rate hike this month.

A 3.3 percent annual rate would be the highest inflation since November 2014 when it hit 3.7 percent, but it would remain within the central bank's 2-4 percent target for this year.

The BSP has not tinkered with interest rates since it raised the benchmark rate by 25 basis points in September 2014. (LCC, with Reuters report)