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THE
Bangko Sentral ng Pilipinas (BSP) decided to do an
interest-rate cut of its own Thursday, but at a
shallower 25 basis points rather than the 50-basis-point
reduction the market expected.
The
decision brought the BSP’s overnight borrowing rate to 5
percent and its overnight lending rate to 7 percent from
5.25 percent and 7.25 percent, respectively.
To a
great extent, the cuts signal the optimism that Manila
authorities do not have to mirror the same degree of
concern shown by the US Fed on possible recession given
the introduction of mitigating measures, officials said.
Former
Monetary Board member Melito Salazar Jr. put it this
way: the Philippine authorities cannot afford to send
the signal that they are “panicking along with the US
Fed,” referring to the US emergency cut of 75 basis
points followed by Thursday’s 50-basis-point reduction.
“The
jury is still out [on possible US recession]. We need to
digest it and rethink. We still don’t know whether the
US fiscal-stimulus package will achieve its goals, so
why should we react so early?” BSP managing director
Maria Cyd Tuano-Amador said after her boss, BSP Governor
Amando M. Tetangco Jr., announced the decision.
According to Tetangco, inflation this year will likely
fall within the 3 percent to 4 percent range, with
inflation being the main ingredient in making
appropriate monetary-policy responses.
The
forecast was for inflation to range from 3.5 percent to
4.4 percent this year, higher than actual inflation rate
averaging 2.8 percent just last year.
“Demand
indicators continue to show some strengthening,
indicating manageable price pressures going forward.
“Inflation expectations remain well anchored and
liquidity growth has been decelerating on account of
liquidity-management measures adopted earlier in 2007.
“Core
inflation, a measure of the underlying trend in consumer
prices, remained lower than headline inflation in
December,” Tetangco said.
The
shallower-than-expected rate cut raised issues about the
thinning interest differential between the peso and the
US dollar, fueling apprehension of greater foreign
capital inflows and its impact on the exchange rate.
Deputy
BSP Gov. Diwa Guinigundo said the rate cut mirrored more
than just the interest differential that he stressed was
an important consideration.
But more
than the differential were considerations of growth
based on firm macroeconomic fundamentals, according to
Guinigundo.
He said
the firm macroeconomic underpinnings allowed the economy
to post growth averaging 7.1 percent in the first three
quarters last year no matter the supply-side shocks
caused by higher petroleum product prices.
“Also,
this bolsters our confidence that our demonstrated
resilience will serve us well for the rest of 2008,”
Guinigundo said of overall growth.
Thursday’s rate cut was the fourth such reduction since
October last year and a direct response to the series of
cuts the US Fed adopted in recent days.
The US
Fed reduced its benchmark rate by 75 basis points in an
emergency cut last week, bringing the benchmark rate to
3.5 percent; followed by another 50-basis point
reduction on Thursday to only 3 percent.
The BSP
said Manila’s own fiscal stimulus package did not factor
in making the decision to cut the rates further.
Should
the peso further rise as a result of the rate
reductions, then that would be welcome news, Guinigundo
said. |
