Room to keep BSP rates steady ‘narrowed’

MANILA, Philippines – The Bangko Sentral ng Pilipinas said its interest rates remain appropriate, but the room for keeping them steady is narrowing due to the uptick in inflation.

BSP Governor Amando Tetangco said inflation would remain within the target of 3-5% this year, but it would likely settle near the high end, at an average of 4.25%. In February, inflation stood at 4.1%.

“Our forecast runs show that, over our policy horizon, average annual inflation will settle within the government’s target range,” BSP Governor Amando Tetangco, Jr. said during the 2014 Philippine Economic Briefing. “here continues to be room to keep rates steady… although the room for keeping stance of policy has narrowed.”

The BSP’s policy-setting body, the Monetary Board, will meet to discuss interest rates on March 27. In its last meeting in February, it kept the overnight borrowing and lending rates at record lows of 3.5% and 5.5%, respectively.

BSP’s rates are banks’ benchmark in charging their loans. Low rates make loans cheap, encouraging consumers and businesses to borrow. Loans fuel spending and stir economic activity. Higher spending pushes consumer prices up.

“What we’re saying is that room for maintaining policy rates is narrower now given that last year, we were at the low end of the (inflation) target range. This year we have the same target, but the forecast is above the midpoint of the range,” he said.

He added, “we’re moving into a higher interest rate environment globally. With the Fed tapering, global interest rates are bound to go up at some point. We should bear that in mind. If we take action now, the adjustment may be gradual and less disruptive.”

Tetangco also said that the BSP is closely watching domestic liquidity.

“We’ve seen an increase in domestic liquidity… This is due to operational adjustments that we’re doing to the SDA facility. When funds move to deposits, there’s automatic increase in liquidity. This has to be watched.” – Rappler.com