Policy rates remain unchanged

MANILA, Philippines – There are no changes again for key policy rates as the Monetary Board decides that such is unnecessary since the inflation environment remains manageable, the Bangko Sentral ng Pilipinas (BSP) reported.

In a meeting Thursday, March 26, BSP said key policy rates for the overnight borrowing or reverse repurchase (RRP) facility remains at 4%. The 6% rate for the overnight lending or repurchase (RP) facility has also been retained.

RRP is the interest rate on the RP transaction, typically contracted between the BSP and banks. RRPs may also have overnight or term maturities.

The special deposit accounts (SDAs) or fixed-term deposits by banks and trust entities of BSP-supervised financial institutions with the BSP, were also kept steady.

In June 2014, BSP raised the interest rate on the SDA facility by 25 basis points to 2.25% from 2% across all tenors effective immediately.

The reserve requirement ratios, or the central bank regulation that sets the minimum fraction of customer deposits and notes that each commercial bank must hold as reserves, were left unchanged as well.

BSP last raised banks’ reserve requirement ratio by 1 percentage point in May 2014, amid rising inflation during that period.

BSP said that the Monetary Board’s decision to keep the key policy rates unchanged is due to manageable inflation environment.

The full-year 2014 inflation average at 4.1% is within the official target – the 6^th consecutive year it remained with the range since 2009.

As of February this year, inflation was at 2.5% over relatively stable peso and normalized port utilization.

Domestic demand conditions remain robust, owing to solid private demand, adequate domestic liquidity, and buoyant business sentiment, BSP said.

Higher public spending is also expected to support economic activity, BSP added.

“Given these considerations, the Monetary Board is of the view that current monetary policy settings remain appropriate,” BSP said.

Acting cautiously

Analysts foreseen via separate research notes that the Monetary Board would not lay hands on key policy rates.

BSP would not touch its key rates, attributing to previous pronouncement of BSP Governor Amando Tetangco Jr. that current economic conditions will not need additional stimulus from monetary policy, said ING Bank Chief Economist for Asia Tim Condon.

But BSP is seen to streamline the RRP rate to make it more effective, Hong Kong Shanghai and Banking Corporation Economist Trinh Nguyen said.

She added that the disappointing January export and remittances figures are indicators that BSP would unlikely change its monetary stance.

Export growth in January dropped 0.5% due to weaker demand in manufactures and lower sales from petroleum.

Remittances, meanwhile, reached $2 billion in January – the slowest expansion since January 2009.

But offsetting factors such as inflows, flush liquidity, higher fiscal spending, rising business process outsourcing sector growth, including savings from oil, should also help to ease growth worries, Nguyen said.

Excess liquidity also remains a long-term concern for BSP. Such excesses fuel demand for safer assets such as bonds, prompting worries on risks ahead even if lending is growing, analysts said.

Remaining vigilant

While the inflation outlook continues to be broadly balanced, the Monetary Board remains on the lookout for risks, like the pending petitions for adjustments in utility rates and possible power shortages.

Although global economic activity has turned slightly more positive, such remains uneven which could trigger upward pressure on commodity prices.

“Going forward, the BSP will continue to monitor domestic and external developments affecting the inflation outlook to ensure that the monetary policy stance remains consistent with its price and financial stability objectives,” the central bank said.

In anticipation of BSP’s unchanged monetary stance, buyers opted for select-buying that boosted the Philippine Stock Exchange Index (PSEi) to rise Thursday at 34.76 points or 0.44% at the closing bell, to reach its 20^th record for the year at 7,871.10 points.  – Rappler.com