BSP can afford to keep rates low – Tetangco

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) could afford to keep its interest rates “low” despite inflation accelerating for the first two months of the year, BSP Governor Amando Tetangco said over the weekend.

“While there may be a slight uptick in inflation rate for January and February, this does not change the overall picture of manageable inflation going forward,” Tetangco said.

“So if you are asking if we can keep interest rates low, yes, we can afford to keep interest rates low,” he added.

The rise in consumer prices gained pace in February, registering a 3.4-percent uptick from three percent the previous month. The January reading itself was an increase from 2.9 percent in December.

Inflation averaged 3.2 percent last year, falling at the low-end of the central bank’s three to five-percent target, and enabling the central bank to slash policy rates by a total of 100 basis points to new historic lows.

Policy rates now stand at 3.5 percent for overnight borrowing and 5.5 percent for overnight lending. That stance will be up for review when the policymaking Monetary Board meets on March 14.

The inflation outlook continues to be “favorable,” Tetangco said, noting that current estimates point to the actual figure falling “closer” to the low-end of the three to five-percent target range.

The BSP has forecast inflation to slow down to three percent this year before inching up to 3.2 percent in 2014.

“We always conduct an assessment of the latest developments that could impact on local inflation,” Tetangco said, citing movements in international commodity and food prices, among others.

Capital inflows are also taken into consideration, he said, although as of now, BSP believes the “impact has been manageable” as far as liquidity affecting inflation and financial stability is concerned.

In the past year, the central bank has unveiled several macroprudential measures to deal with capital inflows flocking to emerging markets like the Philippines for better returns in a bid to thwart any instability that may be forming.

Tetangco said the central bank will be ready to deploy or enhance existing measures, if necessary.

“We always review the measures that we have in place. We are always prepared to tweak existing measures of introduce new measures as may be appropriate,” he said.

Analysts said the central bank may keep policy rates steady during its next meeting.

“The central bank will be able to maintain accommodative policy in the short term amid a low inflation environment,” DBS Ltd. economist Eugene Leow said in a research note.

Pauline Revillas, research analyst at Metropolitan Bank and Trust Co., agreed, saying BSP can afford not to provide additional stimulus since the economy has been growing well.