Bangko Sentral keeps policy, special deposit rates unchanged

(Updated 6:32 p.m.) Monetary authorities on Thursday kept policy settings unchanged while waiting for the results of the US Federal Reserve's meeting on the US economy, the Bangko Sentral ng Pilipinas chief announced.
 
At a press conference, BSP Governor Amando Tetangco Jr. said the policy-setting Monetary Board left unchanged the overnight borrowing rate at 3.5 percent and overnight lending at 5.5 percent.


 
Monetary authorities also kept yields of the central bank's special deposit accounts (SDA) – a tool to mop up excess liquidity – unchanged at 2 percent across all tenors.
 
“Steady policy settings will... allow policymakers to better assess evolving economic risks, given the current volatilities in global financial markets,” said Tetangco.
 
At the same press conference, Bangko Sentral Deputy Governor Diwa Guinigundo said monetary authorities opted to hold fire ahead of the US Federal Open Market Committee (FOMC) meeting next week – which financial markets are closely watching for a more definitive stance on when and by how much the US central bank is cutting the monthly bond-buying stimulus.
 
“We believe keeping things stable for now is the more prudent approach as we continue to make observations on key economic developments,” Guinigundo said.

Settings now appropriate
 
The FOMC will meet to discuss the US economy September 17 to 18 in Washington, followed by an announcement by Fed chairman Ben Bernanke.  
 
Bets on when and by how much the Fed will cut its $85-billion bond purchases have caused volatility in the financial system.

Meanwhile, Indonesia – whose currency suffered a heavy blow on renewed financial volatility – increased its benchmark reference rate by 25 basis points to 7.25 percent, Reuters reported.      

The Indonesian central bank raised the overnight deposit facility rate, or FASBI, by 25 basis points to 5.50 percent, to help prop up the ailing rupiah.

Patrick Ella, economist at Security Bank Corp. in Manila, said Indonesia needed to hike rates amid high inflation at the 8 percent levels and current account deficit of $9.8 billion or 4.4 percent of gross domestic product in the second quarter of the year.

“Indonesia’s environment is fairly different from ours,” he said.

The economist, moreover, said Philippine monetary authorities had “no impulse” to tweak monetary settings.

Moving forward, Ella said, “Next policy moves of central bankers will rely on the type of market reaction following the FOMC. I doubt, though, that there any cuts in policy rates in the medium term.”

Bangko Sentral officials also said current policy settings remain appropriate amid benign inflation and strong growth.
 
“Latest baseline forecasts indicate that the future inflation path continues to be broadly in line with the target” of 3 to 5 percent this year, said Tetangco.
 
“Domestic economic activity has also been growing at a solid pace, supported by firm demand and buoyant business demand,” he added.
 
Inflation averaged at 2.8 percent in the eight months to August. The Philippine economy grew by 7.5 percent in the second quarter, the fastest in Southeast Asia.

Philippine monetary authorities will discuss policy anew on October 24. – VS/BM, GMA News