Bangko Sentral keeps interest rates unchanged at record lows

By SIEGFRID O. ALEGADO, GMA News

Published December 13, 2012 4:20pm

(Updated 6:04 p.m.) Monetary authorities on Thursday kept policy rates unchanged, the Bangko Sentral ng Pilipinas reported, citing a strong economy and already low benchmark for borrowing and lending.

In a briefing, Bangko Sentral ng Pilipinas Governor Amando Tetangco told reporters the policy-setting Monetary Board kept interest rates at 3.5 percent for overnight borrowing and 5.5 percent for overnight lending, both at record lows.

The Monetary Board lowers rates as a springboard for growth and raises rates to curb price pressures.

“The Monetary Board’s decision is based on its assessment that current monetary settings remain appropriate, as the cumulative 100-basis point reduction in policy rates in 2012 continues to work its way through the economy,” he told reporters at a briefing.

The board's action is in line with market expectations.

Citing a strong 7.1 percent economic growth in the third quarter, Bangko Sentral Deputy Governor Diwa Guinigundo said the “Philippine economy needs very little support from monetary policy.”

“Risks to the inflation outlook appear to be evenly balanced around the baseline forecasts, with inflation expectations broadly aligned with the inflation target range,” Tetangco said.

Monetary authorities also bared slower inflation forecast for this year until 2014.

While interest rates movements were not expected, analysts took the cue from Bangko Sentral officials on the possible use macroprudential measures to curb volatility from foreign funds flocking into the country.

“These include curbs on NDFs (non-deliverable forwards) and setting a minimum holding period for securities,” said Singapore-based DBS Bank Ltd. in a research note.

NDFs are dollar-based derivatives that are traded offshore and can be used for hedging and also for taking a position on a currency. These are futures contract between two parties to buy or sell foreign exchange at an agreed price.

NDF and securities inflow cause foreign exchange volatility and also fan inflation by adding to already liquid market.

“Macroprudential measures that are well targeted to specific markets will be better in dealing with impact of capital flows,” said Guinigundo.

Earlier this month, Bangko Sentral officials hinted on employing NDF caps for banks and setting a 90-day holding period for speculative investments.

“Going forward, the Bangko Sentral will continue to monitor evolving price and output conditions to ensure that the monetary policy stance remains consistent with ensuring stable prices while supporting economic growth,” Tetangco said. — VS, GMA News

Tags: bangkosentral, tetangco, policyrates, interestrates