BSP to keep options open on key rates

THE Bangko Sentral ng Pilipinas (BSP) said it would continue to exercise flexibility in its monetary stance with the expected slowdown in the global economy next year.

In its third quarter inflation report, the BSP said the impact of the US financial crisis on the domestic economy would be addressed with stable inflation and flexibility in its monetary stance.

“With the global financial crisis and prospects of a marked slowdown in global economic growth in 2009, mo-netary policy will continue to be geared towards the achievement of price stability while exercising flexibility given the presence of significant shocks to the real sector,” the central bank said.

Besides price stability, the BSP would continue to promote financial market stability to ensure its interest rate-setting policy would remain effective.

“The BSP is firm in its resolve to undertake policy actions that will ensure soundness and the stability of the banking sector and to strengthen the public’s trust and confidence in the financial system, by making sure there is sufficient liquidity to fund the growth requirements of the economy,” it said.

It projected the Philippine economy to sustain a 4-percent growth this year and next year despite the global economic slowdown, Cyd Amador, BSP deputy director, earlier said.

Besides lower inflation, Amador attributed the likely growth to public investments, government intervention, earnings from business process outsourcing (BPO) services, tourism and mining sectors.

Amador said inflation is expected to decelerate rapidly after peaking in September at 12.5 percent.

Because of this, inflation will settle below the BSP’s forecast of 9 percent to 11 percent this year and 6 percent and 8 percent next year, she said.

Year-to-date inflation reached 12.2 percent, as a result mainly of higher food prices which grew 17.1 percent.

Despite declining inflation, the Monetary Board has maintained its key policy rates in its last meeting on October 6.

The BSP said a steady monetary policy will be helpful in preventing any credit crunch. The policy-making Monetary Board is set to meet on November 20. Its overnight borrowing and lending rates stand at 6 percent and 8 percent, respectively.

Besides its interest-rate policy, the Monetary Board has instituted measures to mitigate the impact of the widening global credit crunch on the local economy. In recent weeks, it has allowed financial institutions to reclassify financial assets from categories measured at fair value, to those measured at amortized cost, helping them trim their losses due to the persistent volatility in asset prices.

The BSP also allowed banks to exclude net unrealized losses in the calculation of the asset cover requirement of their foreign currency deposit units (FCDU).

Source: Maricel E. Burgonio