The Bangko Sentral ng Pilipinas (BSP) hinted broadly on Thursday of more stable interest rates over the next 12 months, its strongest word yet on the direction of short-term interest charges, following the US Federal Reserve (the Fed) decision putting an end to more than five years of monetary and fiscal stimulation.
The US Fed decision, BSP Governor Amando M. Tetangco Jr. said, effectively removed that air of uncertainty hanging over interest charges in the Philippines that have been deliberately kept low to help the $270-billion economy achieve growth, measured as the gross domestic product (GDP), as high as 7 percent this year.
“The Fed’s announcement of the end of taper was widely expected, and to the extent this confirms the underlying strength of the US economy, it should be positive for the emerging-market economy trading partners of the US, including the Philippines,” Tetangco said in a mobile-phone message to reporters.
“This also takes out one aspect of uncertainty in the market,” he quickly added. “That said, the Fed action gives us some latitude to keep rates steady as our own domestic inflation dynamics is fairly stable and allows previous
monetary policy actions to filter through the economy,” Tetangco said further. However, Tetangco also warned the Fed’s use of language indicative of keeping interest rates low for a considerably more time yet could spur speculative market.
“Language that the Fed could keep rates low for a considerable time could still keep market participants on the look out and, therefore, still mean some market volatility before the actual lift happens,” Tetangco said.
“We will remain watchful of market conduct, particularly in the near-term in the spot foreign exchange market, check for threats of possible excessive moves and if there is need for BSP to act,” he vowed.
The BSP has kept the policy levers frozen at its penultimate policy meeting given prospects of more stable inflation over the policy horizon.
In Washington, International Monetary Fund Managing Director Christine Lagarde reiterated her call for a “new multilateralism” to overcome a mediocre global recovery and solve problems such as climate change, gender bias and income inequality.
“Many of the challenges we face represent a collective threat, and call for a cooperative response,” Lagarde said Thursday in accepting Foreign Policy magazine’s diplomat of the year award in Washington. “It is only by acting collectively that an individual country’s self-interest can be achieved.”
Lagarde said the global economy is still “struggling to regain cruising speed,” while geopolitical problems in Ukraine and the Middle East compound the difficulties. The IMF is ready to do more to ease the Ebola crisis, she said.
“Challenges like these can only be held at bay—they can only be overcome—through working together,” Lagarde said. “What I am talking about here is a renewed commitment to the global public good.”