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No need to follow Fed policy rate ruling – Tetangco

No need to follow Fed policy rate ruling – Tetangco
By Joann Santiago


MANILA (Philippines News Agency)- Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. on Thursday said the Philippine central bank need not follow all the moves of the Federal Reserve.

This after the minutes of the Federal Open Market Committee (FOMC) meeting last January 31 to February 1 showed that “many participants expressed the view that it might be appropriate to raise the federal funds rate again fairly soon if incoming information on the labor market and inflation was in line with or stronger than their current expectations or if the risks of overshooting the Committee’s maximum-employment and inflation objectives increased.”

The last time the Fed adjusted its key rates is in December 2016 when it hiked it from a range of 0.25 percent to 0.50 percent to 0.5 percent to 0.75 percent on continued growth of the US economy.

Markets have expected around three hikes in the Fed rates this year, with some projecting a hike during the FOMC meeting next month.

In the case of the BSP, the last time the policy-making Monetary Board (MB) adjusted the Philippine central bank’s key rates was in May 2016 in line with the implementation of the Interest Rate Corridor (IRC) in June last year.

As a result overnight borrowing or reverse repurchase (RRP) rate was cut to three percent from four percent and the overnight lending or repurchase (RP) rate was slashed to 3.5 percent from six percent.

On the other hand, rate of the special deposit account (SDA) facility was maintained at 2.5 percent.

The RRP serves as the IRC’s key rate, the RP rate is the ceiling rate and the SDA is the floor rate.

The four percent RRP rate and the six percent RP rate were maintained from September 2014 until May 2016. Since the adjustments in May last year, the rates have been kept.

Monetary officials, on the other hand, stressed that the rate adjustment is policy neutral and not necessarily a cut.

Analysts have projected the BSP to raise key rates as early as the second quarter this year as inflation continues to rise on sustained hikes in the prices of oil in the international market.

Tetangco, in a text message to reporters Thursday, said “the Fed’s judgement on the timing of its next move, as mentioned in the statement, will be based on forthcoming data on jobs and inflation.”

He explained that “as is our practice, we include new information from Fed signals in our scenario building.”

He said the MB, which he chairs, would “look at the potential impact on financial markets (which is the segment most reactive to the Fed) in the near term, and the impact on bank portfolios (especially the interest rate sensitive bank balance sheet accounts) as well as banks’ capacity to lend to productive sectors of the economy, in the medium term.”

“In other words, it’s not a linear analysis, not a one to one correspondence. This is why we have always said that, while we are mindful of the Fed, we do not necessarily have to move in sync with it,” he added.

The next MB meeting was scheduled on March 23, 2017. (PNA)

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