Philippine central bank says could keep current policy stance if inflation remains favourable

MANILA: The head of the Philippine central bank said on Wedneday it could leave current policy settings on hold if inflation remains favourable and the US Federal Reserve takes its time in raising interest rates, its head said on Wednesday.

Bangko Sentral ng Pilipinas Governor Amando Tetangco was speaking at a forum organised by the Foreign Correspondents Association of the Philippines, a day after he said inflation will probably ease further on lower food and fuel prices.

"If the inflation situation and the forecasts remain favourable and manageable the market can expect the BSP (central bank) to maintain the current stance of policy," Tetangco said. In determining its next policy move, the central bank will take into account inflation expectations, the impact of changes in monetary policies of advanced economies on financial markets and growth in the country's major trading partners, Tetangco said.

The Fed is widely expected to announce on Wednesday it will end its two-year-old bond-buying stimulus, known as quantitative easing three, as the US economy continues to recover.

Still Fed officials have also stressed they are in no hurry to take policy tightening a step further by raising rates from near zero levels due to subdued inflation and the poor quality of a recovery in labour markets.

Fears of Fed tightening have sparked heavy selling of emerging market currencies, stocks and bonds several times over the past year.

"With latest Fed communications pointing to more dovish approach, BSP may be able to buy some time to allow these adjustments to work their way into the economy," Tetangco said referring to previous policy actions by the Bangko Sentral ng Pilipinas (BSP).

Last week, the BSP left policy rates unchanged after it raised in September both the overnight borrowing rate and the rate on its special deposit accounts by 25 basis points to curb inflation amid buoyant economic growth.

That followed a quarter-point hike in the policy rate in July, one of the same size for the SDA rate in June, and two consecutive increases in banks' required reserves in March and May.

Some analysts expect the central bank to resume raising interest rates as early as in the first quarter of 2015 to head off potential price pressure from an anticipated power shortage and prepare for an eventual policy normalisation in the United States.

The central bank will hold its last policy-setting meeting this year on Dec. 11. In the same forum, Tetangco said there was no clear evidence of asset bubbles in the property sector, with banks' exposure to the real estate market still at manageable levels and prices of property way below levels in 1997 to 1998.

The Philippine property market suffered the worst beating in the region during the Asian financial crisis of 1997-1998.