AFTER keeping its monetary-policy settings unchanged in its last meeting, it is unclear whether the Bangko Sentral’s next move would be toward tighter or more relaxed interest rates owing to the diversity of potential developments it has to consider in the policy horizon.
Bank of the Philippine Islands associate economist Nicholas Antonio T. Mapa said that, while BSP Governor Amando M. Tetangco Jr. has clearly communicated to markets the appropriateness of its current settings, the central bank’s next move will depend on what will happen in the local and international scene.
Mapa said if local economic activity shows signs of slowing, markets will be on a lookout for the central bank’s hint toward potential easing measures to help bolster growth, possibly through cutting rates further from where they currently are.
However, aside from growth, the BSP also has to consider inflation trends, the Federal Reserve’s (the Fed) next move and cash supply.
As such, should inflationary trends begin to build ahead of the Fed rate hike, and should strong liquidity in the system still prevail, the BSP will likely push for higher local interest rates by substantially increasing its weekly auction volumes.
Mapa also said the central bank may opt to unveil a number of macroprudential measures, possibly in key sectors like real estate, in order to arrest any inflationary pressures or areas of excessive risk-taking behavior from the recent string of negative real interest rates.
Tetangco announced in its postpolicy meeting the BSP decision to maintain interest rate on the central bank’s overnight reverse repurchase facility at 3 percent.
All corresponding interest rates on the overnight lending and deposit facilities were also kept steady and the reserve requirement ratios unchanged.
Tetangco said their main considerations include a subdued and manageable inflation, solid-growth expectations and slower global economic activity.
“With these considerations, the Monetary Board believes current monetary-policy settings remain appropriate. At the same time, increased uncertainty over prospects for growth and monetary-policy action in major advanced economies warrants prudence in policy settings,” Tetangco said.