Cautious BSP readies exit strategy

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) remains committed to adopting an exit strategy but will continue to be mindful of the impact of the global developments on the domestic economy.

BSP Governor M. Amando Tetangco Jr., who is currently attending the annual meeting of the International Monetary Fund (IMF) in Istanbul, Turkey, said economies have reached a consensus to unwind unconventional policy measures.

“While no consensus on the timing and manner of the exit has really been reached, what is clear is the conviction that any unwinding should be gradual and orderly, so as not to stymie the nascent recovery that we are currently seeing,” Tetangco said.

He added that an agreement was also reached that there should be measures to restore bank balance sheets and for economies to be mindful of fiscal sustainability issues while ensuring entitlement reforms.

After slashing its key policy rates by a total of 200 basis points since December last year, the policy making Monetary Board has kept interest rates unchanged for two straight meetings.

The BSP kept its overnight borrowing rate at a record low of four percent while the overnight lending rate remained at six percent.

“This is really in line with our own thinking. As you know, we have maintained our current stance during the last policy meeting to continue providing support to economic growth given the favorable inflation outlook,” Tetangco said.

Meanwhile, the BSP has revised its emerging inflation forecast to 3.03 percent this year from the original target of instead of three percent this year and 3.43 percent instead of 3.31 percent next year.

BSP Deputy Government Diwa Guinigundo explained that the latest forecasts continue to indicate within-target inflation over the policy horizon and that the domestic real sector activity has started to show further signs of recovery.

“There are additional risks but not enough to breach the forecasts for 2009 and 2010,” Guinigundo said. The central bank sees inflation averaging between 2.5 percent and 4.5 percent this year and 3.5 percent and 5.5 percent next year.