Philippines: Wait-and-see stance on interest rates
MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is keeping a wait and see stance on interest rates as it still has room to maneuver despite the hawkish policy of global central banks led by the US Federal Reserve.
BSP Governor Benjamin Diokno said in an interview with Bloomberg Television that monetary authorities are keeping a patient hand as they “decided to wait a little bit” by keeping the benchmark rate at an all-time low of two percent.
Diokno said the Monetary Board would continue to monitor developments as most central banks in Latin America, Europe, and even Asia have started to tighten their policy by hiking interest rates.
“So I think we still have room to maneuver because the inflation outlook looks good. And of course growth also is picking up and unemployment is going down. So we’ll wait until what happens in the US and the extent to which they will tighten,” Diokno said.
While inflation has shot up to 7.5 percent in the US, the BSP chief said inflation in the Philippines eased for the fifth straight month to a 15-month low of three percent in January from 3.2 percent in December.
Using the 2018 base year, inflation accelerated to 3.9 percent last year after peaking at 4.4 percent last August from 2.4 percent in 2020 on the back of rising global oil prices and elevated food price caused by weather-related disturbances and the African swine fever outbreak.
The BSP has set an inflation target of two to four percent for 2022 until 2024.
While it kept interest rates untouched at record lows last Feb. 17, the BSP raised its inflation forecasts to 3.7 percent for this year and to 3.3 percent for next year.
“So you have to consider that the real interest rate is what matters. And we evaluate how the Fed’s rate will affect our output and, of course, our inflation rate,” Diokno said.
The BSP has been reducing government support as the county continues to recover from the impact of the pandemic.
For one, Diokno said the Monetary Board has lowered the non-interest bearing loan extended to the national government to P300 billion from P540 billion last year.
Likewise, Diokno said the BSP has reduced its exposure to government securities in the secondary market to about 0.25 percent in the first two months of the year from four percent last year and 22 percent in 2020.
“As I mentioned, unemployment is going down despite the fact that labor participation rate is up. So we’re okay along that path. Our GDP grew in the last three quarters, so we have two more quarters to look at. And so we’re just right where we want to be,” Diokno said.
On the exchange rate, Diokno said authorities remain comfortable with the level of the peso. It is still within the 49 to 53 to $1 level set by the Development Budget Coordination Committee.
“So, we are comfortable. We should not be concerned because that’s what the market supply and demand dictates. We also have a very strong macroeconomic fundamentals,” Diokno said.