BSP to study US impact on local economy ahead of policy meeting

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) will consider how the dovish statements from the United States Federal Reserve will impact on local growth and inflation outlooks as it sets policy next week, its top official said on Thursday.

“We will consider the impact of the Fed guidance, market sentiment and actual flow of funds on global and domestic growth and inflation dynamics,” BSP Governor Amando Tetangco, Jr. said in a text message to reporters.

On Wednesday night, US Fed Chairman Ben Bernanke told American congressmen that the $85-billion bond buying program, initially thought to be coming to an end, is “not on a preset course,” suggesting it could keep policy accommodative.

Over the past month, Asian financial markets, including those from the Philippines, suffered huge losses after the world’s superpower indicated it could taper off cheap money from its quantitative easing “later this year” on signs of recovery.

With the latest statement, Tetangco said the US Fed is trying to help investors digest its next move and “hopefully markets will be more circumspect this time around” before making any bets. 

Thus, investors, he said, are expected “not to place or extend large one way bets” which “often create their own stages for panic by overshooting before and after the fact.”

Last month, the Philippine Stock Exchange index dropped by as large as 6.5 percent, while the peso weakened toward the 44-peso mark versus the dollar. They have since recovered some lost grounds. 

“For the BSP, our actions will continue to be guided by our primary mandate of price and financial stability,” the central bank chief said. 

“That said, at the moment, our outlook for inflation continues to be that it is manageable and therefore current policy settings continue to be appropriate,” he added. 

On Wednesday, Tetangco told reporters there is “no urgency” to tweak policy rates, currently at their record-lows of 3.5 percent and 5.5 percent, when the BSP’s policymaking body Monetary Board meets on July 25.

He cited the country’s strong fundamentals led by strong growth of 7.8 percent in the first quarter, hit against the backdrop of slow inflation of 2.9 percent as of May. Sound external buffers and fiscal discipline were also noted.

Tetangco emphasized, though, that local and external developments will also be considered in setting the policy next week, one of which is the actions by the US Fed.

“I believe what the Fed was saying is that policy formulation is not a ‘blackbox’ with strict formulas. Many variables are being considered and each is interacting with the other and not necessarily moving at the same pace,” he explained.

“In other words, markets must now be more discerning,” Tetangco added.