US rate hike positive for Philippine economy – BSP

MANILA, Philippines - A US interest rate hike would prompt a review of monetary policy settings, a Bangko Sentral ng Pilipinas official said, but stressed such a move would have a positive impact on the country as this reflects an improving US economy.

BSP Deputy Governor Diwa C. Guinigundo made the comment ahead of the US Federal Reserve’s policy meeting on Wednesday and Thursday.

The Fed’s action this week is expected to be the focus of central banks across the world as they ready measures to counter any negative impact on their economies.

“A Fed rate action is expected to reflect its view on the direction of the US economy. As such, a Fed hike means they are optimistic the US economy has turned the corner and is bound to show improving prospects such that it could accommodate higher cost of funding,” Guinigundo said.

“This will signal the need for everyone to review each respective economy ‘s monetary policy stance. In the Philippines, we have undertaken a number of preemptive moves since last year,” he added.

The US central bank has maintained its interest rates near zero following the global financial crisis of 2008. It has also implemented a massive asset-buying program to pump money in the US economy but the Fed started decreasing this in January last year until finally ending it in October.

Guinigundo said an interest rate hike in the US may boost demand, which would then drive the country’s exports and services industry amid the country’s ties with the US.

“A hike will also provide future guidance on the export sector that US demand will recover, strengthen and lead global economic resilience,” Guinigundo said.

“This should be good news to our merchandise trade, services and capital transactions. All up, we should see our output moving up several basis points,” he continued.

External developments such as the US Fed’s impending rate hike are only among the factors taken into consideration when the BSP revisits policy settings.

The policy-making Monetary Board kept the overnight borrowing and overnight lending rates steady during its most recent meeting on Aug. 13. The rates have been left unchanged following a 25-basis-point-increase in September last year.