Fed hikes US rates, BSP unmoved

The Bangko Sentral ng Pilipinas (BSP) will not likely move policy stance when it meets next week following the US Federal Reserve’s (Fed) second interest rates’ hike.

“Given the Fed action was as expected and inflation for now is seen to be well-behaved, there appears to be no need to tweak policy settings,” BSP Governor Amando M. Tetangco Jr. commented yesterday.

The US Fed increased its policy rates by 25 basis points to 0.75 percent to one percent during its meeting on Wednesday (US time). This is the second rates adjustment in three months or since December 2016 for the US as it gains more confidence in the direction of its economic growth.

(Related story on B-5) Tetangco said the normalization of US rates will prove positive for the country over time. “In a way that (US rates’ normalization) can be seen as positive for risk sentiment in the near term, but on the whole

the Fed’s balanced view could be good for global growth and trade particularly for trading partners of the US like the Philippines,” he noted.

Global markets have been anticipating the US Fed’s latest actions and is generally seen as a positive move particularly since Fed officials have assured markets that any rates’ increase will be gradual.

“The Fed’s move though widely expected still contained valuable market information, particularly the indication of continued gradual pace of next steps and the consequent market interpretation that the Fed is willing to let inflation overshoot,” said Tetangco.

“We will therefore watch out for further developments on the trade side to see the impact on bank and corporate credit activities,” he added.

The BSP’s Monetary Board will have its own policy stance meeting on March 23. The central bank last adjusted its stance in September, 2014 when it raised rates by 25 basis points.

In June last year it shifted to the interest rate corridor (IRC) system and recalibrated benchmark rates as part of the new IRC framework.

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.