By Joann Santiago
MANILA, Feb. 24 (PNA) — The current low inflation environment along with strong domestic growth and low oil prices give the Bangko Sentral ng Pilipinas (BSP) a leeway to keep its key rates steady for most of the year.
BSP Governor Amando Tetangco Jr., after the Management Association of the Philippines’ (MAP) general membership meeting in Makati City wherein he served as the keynote speaker, said the BSP’s policy stance remains data-dependent thus Philippine monetary officials continue to monitor developments both here and abroad.
“Right now, given the facts that we have, we think the stance of the monetary policy remains appropriate. And, if current conditions continue then probably we’ll be able to maintain the stance of policy for most of 2015,” he said.
The central bank chief, however, stressed that “things can change.”
Tetangco said this is the reason they continue to check developments in advance economies and its possible impact to the Philippines.
For one, the Federal Reserve is expected to increase its key rates by the middle of this year if the world’s largest economy sustained its recovery.
Any increase in Fed rates, which to date is between zero to 0.25 percent, is generally expected to increase capital flows to the US and result to capital flight from other economies.
The projected withdrawal of capitals from emerging markets like the Philippines is, on the other hand, seen to be countered by inflows attracted to the country’s fundamentals.
Tetangco said these factors can affect growth of domestic liquidity or M3, which in the case of the Philippines is on the downtrend after peaking at 37.3 percent in January 2014.
The drop in M3 is being attributed to the series of regulatory measures that the central bank’s policy-making Monetary Board (MB) approved such as the ban of foreign funds from the central bank’s special deposit account (SDA) facility as well as the cut in the said facility’s interest rate.
To date, funds parked at the SDA facility is about Php 1 trillion after peaking at Php 1.98 trillion in April 2013.
M3 growth as of end-2014 stood at 9.6 percent after total money sloshing in the domestic economy reached Php 7.6 trillion.
Tetangco said Philippine monetary officials do not want M3 to slow down too much “because we need to provide resources to the real economy.”
”But at the same time, you got capital inflows which serve to expand liquidity. Again, countervailing factors, so you need to watch that,” he added. (PNA)