Jul 162013

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) signaled yesterday it could maintain policy rates at their historic low levels as inflation remains manageable.

“There is no urgency to change the policy because inflation remains under control,” BSP Governor Amando Tetangco Jr. told reporters on the sidelines of central bank’s stakeholders’ awarding ceremony.

Policy rates  – which serve as banks’ benchmarks in charging their loans – have been kept at their record lows of 3.5 percent and 5.5 percent for overnight borrowing and lending, respectively. They have been at that level since October last year.

So far this year, the BSP only chose to tweak the return it offers on special deposit accounts (SDA), parked funds by lenders and trust departments, by a total of 150 basis points to two percent from 3.5 percent.

But for the next policy meeting slated on July 25, Tetangco said he also sees “no urgency to change the status” of the SDA rate, which when lowered thrice reduced idle money with the BSP from a high of P1.98 trillion to just P1.738 trillion as of June 28.

The central bank said efforts to push out funds of the SDA are meant to support economic growth amid a benign inflation environment that gives more capacity to boost money supply in the system.

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Economic expansion hit 7.8 percent in the first quarter, beating market expectations, as an inflation rate of three percent gave more capacity to consumers and investors to spend more.

As of the first half, inflation slowed further to 2.9 percent, slightly falling below the central bank’s three to five-percent target range for the year.

“What we want to emphasize (is that) while there is volatility, the fundamentals of the Philippine economy remains sound. That’s why the gyrations in financial markets, like the foreign exchange market, the equities market and the bond market, were short-lived,” Tetangco explained.

“We have seen lately more normal movements in these markets because fundamentals are there,” he added.

Aside from “strong growth and low inflation,” the BSP chief reiterated that the country’s external buffers remain at “comfortable levels” with reserves at $81.640 billion as of the first semester, still good for nearly a year worth of imports.

The economy’s balance of payments, he said, is also in surplus amounting to $1.884 billion as of May, indicating more inflows than outflows despite the recent rattle in the financial markets across Asia.

Nevertheless, Tetangco said the BSP would “assess” what is happening in the advanced economies, especially in the US where policymakers have signaled possible tapering of stimulus measures later this year.

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