BAGUIO: A modest increase in the Philippine key interest rates will not harm the economy, which has posted uninterrupted growth for the last 60 quarters and is forecast to expand by 6.5 to 7.5 percent this year, a senior central bank official said.
The Philippine central bank, which meets on May 8 to review its monetary policy, has "decreasing elbow room" to keep rates steady because of the possible "normalisation" of key interest rates in the United States, Deputy Governor Diwa Guinigundo told a seminar of economic journalists.
The Bangko Sentral ng Pilipinas (BSP) kept its overnight borrowing rate at a record low of 3.5 percent for the 11th meeting on March 27, but it raised banks' reserve requirement by 1 percentage point to 19 percent in what is widely seen as a start of policy tightening.
The increase in the reserve requirement ratio was meant to mop up excess liquidity as the money supply grew at a record pace in January.
The BSP also kept the interest rate for its short-term Special Deposit Account facility unchanged at 2.0 percent.
"We still have the manoeuvring room not only to hold on to those rates but even consider an increase in the rates should the U.S. Fed decides to further cut down on its monetary stimulus or start increasing interest rates," Guinigundo said.
"The economy can absorb it (a modest rate increase) because the economy at present is growing by 7 to 8 percent," he said, adding macroeconomic fundamentals remained strong.
Guinigundo's comments followed remarks last week by BSP Governor Amando Tetangco saying the central bank continued to see "narrowing" room in which to keep monetary policy steady with price and financial stability pressures appearing on the horizon.
The central bank is targeting inflation this year to average 3 to 5 percent and next year 2 to 4 percent. But it is on the lookout for potential pressures from pending power tariff increases, and possible higher food and oil prices.
"The so-called decreasing leg room or elbow room is due to the fact that slowly the U.S. Fed is saying that the economy is recovering fast and well," Guinigundo said.
"So that means that the pace of reducing its stimulus is getting faster, and the faster it gets, the faster it will be the period for the U.S. Fed to start thinking about normalisation of interest rates."
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