BSP hikes rediscounting rate; keeps policy rates

The central bank on Thursday raised its short-term lending rate for banks under a rediscount facility, in what appears to be the start of monetary authorities’ tightening stance to control money in the financial system amid a slow economic recovery. The Bangko Sentral ng Pilipinas (BSP), however, kept benchmark interest rates at 4 percent for the fifth straight meeting, saying there was no need to hike it given manageable consumer prices. “In its assessment of prevailing economic and financial conditions, the Monetary Board emphasized that the current monetary policy stance remains appropriate," BSP Governor Amando M. Tetangco, Jr. told a news briefing. He added that latest inflation forecasts continue to fall within the central bank’s target this year and in 2011, “with moderate demand pressures and manageable inflation expectations." The government expects the economy to grow by 2.6-3.6 percent this year in line with the slow global economic recovery, which Tetangco said was being propped up in part by monetary and fiscal stimulus measures. Last year, the economy grew by 0.9 percent, within the low end of the state's 0.8-1.8 percent target. Inflation, meanwhile, is expected to come in at 3.5-5.5 percent this year, although the forecast is now higher by 0.7 point at 4.7 percent in anticipation of higher power and water rates. Inflation eased to 3.2 percent in 2009 from 9.3 percent in 2008 amid stimulus programs adopted by the government given lethargic growth. The BSP set the peso rediscount rate equal to the overnight borrowing rate effective February 1. The BSP set the rediscount rate at 3.5 percent last March 2 — 50 basis points lower than the overnight facility — as part of a package to liberalize banks' access to funds and ensure orderly financial markets. Before this, the rediscount rate matched prevailing Treasury bill rates. The hike, which seeks to siphon off excess money in the system, “could help contain inflationary pressures," central bank Assistant Governor Maria Cyd Tuaño-Amador told reporters, even as she insists inflation remained tolerable, manageable and well within the forecast for the year. Amador said the Monetary Board was unlikely to touch policy rates soon give stable prices. “With the current inflation outlook… we can maintain the current policy insofar as interest rates are concerned," she said, adding that the status quo would be very much “data dependent." The same, however, could not be said of other liquidity tools at the central bank's disposal, Amador said. "Since the risk of contagion from global financial stresses is markedly reduced, with the sustained stability in global financial markets, the need for more liberalized pricing of rediscounting loans is now less," Tetangco pointed out. "Going forward, the BSP will continue to monitor closely all developments that could affect the assessment of risks to inflation over the policy horizon, including signs of a build-up in upward pressures on commodity prices," he added. The central bank's main goal is to stabilize prices, but it also has to make sure it doesn't restrict economic growth by keeping benchmark interest rates too high — Norman P. Aquino, GMANews.TV