BSP may not follow moves by US Fed – Espenilla

The Bangko Sentral ng Pilipinas may not necessarily follow in the footsteps of the US Federal Reserve in increasing policy rates as the BSP’s assessment is largely dependent on domestic conditions.

In an interview, BSP Governor Nestor Espenilla maintained that the policy decisions of the BSP are independent of the US Fed as it assesses data based on conditions in the local economy.

The BSP governor made the statement amid concerns that the central bank is “behind the curve” in terms of adjusting its policy rates relative to other jurisdictions.

“(It’s) not necessarily one-for-one. The driver of policy rates in the Philippines is our assessment of the domestic economic conditions,” Espenilla said on the sidelines of the Cryptocurrency: The Truth and the Myth Forum in Makati City.

“We need to balance both the external position, inflation and the growth aspiration of the economy. So this is the call that central banks need to make jurisdiction by jurisdiction,” he added.

According to Espenilla, the BSP’s Monetary Board continues to believe that inflation, although indeed rising, still continues to be manageable and would go down in the future.

Espenilla said the higher inflation rate seen in the first two months of the year is due to the transitory impact of the new tax reform law.

“We think (the increases) are transitory. And based on our two-year projections we expect (inflation) to come back down. So that’s where we are coming from in terms of the manageability of the situation,” he said.

“If you look at the policy stance of the US, by comparing its policy rates vis-a-vis its inflation, it is in a much looser position than where we are. So why must we follow rate hike one-for-one when we are at different starting points? And our economy is growing much faster,” he added.

In February, the country’s inflation rate settled at 4.5 percent, breaching the two to four percent target set by the BSP. This is also higher than the four percent recorded in January.

Nevertheless, Espenilla said the central bank would continue to monitor market conditions to ensure that inflation remains manageable.

The BSP governor also said there is no sign of overheating in the economy.

“There is no evidence, in our view, of overheating. So there’s no need to move right away,” he said.

During its last policy meeting last February, the Monetary Board of the BSP decided to maintain the overnight reverse repurchase facility rate at three percent, as well as the current overnight deposit and overnight lending rates.

The Monetary Board said it expects inflation to remain within target, and settle at 3.6 percent for 2018 and 3.5 percent in 2019.