BSP may not follow Fed move — Tetangco

The Bangko Sentral ng Pilipinas does not see the need to follow the actions of the US Federal Reserve if the US central bank decides to pursue monetary policy tightening this month, Governor Amando Tetangco Jr. said.

“You may ask will the BSP follow the Fed’s cue in terms of the timing and magnitude of the lift-off?... My answer, not necessarily,” Tetangco said in a recent speech.

“We won’t have to sing the same tune, but we will certainly have to sing in harmony,” Tetangco said.

He said the bank regulator was not about to reverse the course of actions it implemented last year, when it embarked on a series of monetary tightening actions.

“Fortunately, the economy was growing robustly then, and therefore there was no need to provide any monetary stimulus. In other words, it was our assessment that the economy could withstand some tightening in financial conditions at that time,” he said.

“You will recall that in our communication then, we further indicated that the moves were also motivated by the anticipation of Fed normalization. It was pre-emptive monetary tightening in order to help guide the domestic markets and break any tendency to under value/appreciate risks. Our concern was that an acute/unabated undervaluation of risks would create financial stability pressures, particularly in the real asset markets,” he said.

The policy-setting Monetary Board of the Bangko Sentral in March and May last year raised the banks’ reserve requirement ratios by one percentage point each to address the issue of excess liquidity in the financial system.

The board in June increased by 25 basis points the interest rates on the special deposit accounts to 2.25 percent from 2 percent across all tenors for the same purpose.

On Sept. 11, SDA rates were again increased by 25 basis points to 2.5 percent across all tenors.The board also increased for the second time last year the key policy rates by another 25 basis to 4 percent for overnight borrowing and 6 percent for overnight lending.

The first 25-basis-point increase to 3.75 percent for overnight borrowing and 5.75 percent for overnight lending was done on July 31, 2014.

Tetangco said a number of factors were at play last year. They included domestic inflation that was threatening to breach the target on the upside, and domestic liquidity growth of over 30 percent as a result of the operational adjustments in the Bangko Sentral’s special deposit account facility.

Tetangco said monetary authorities this year would consider the actual and expected capital outflows that might result from the current global financial market rout and their impact on liquidity growth.

He also said that the Bangko Sentral would carefully review the balance sheets and portfolios of the banking system to see if there was a need to adjust policy settings or tweak macro-prudential measures.

“We will also, and more importantly, monitor inflation expectations. We have shared with you that for 2015, inflation is likely going to be lower than the government’s target band,” he said.

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