Philippines Sees Monetary Policy ‘Wiggle Room’ Amid Global Risks

  • Reserves, current account surplus are buffers against shocks
  • Cut in banks’ required reserves possible within 10 months

The Philippines has enough room to adjust interest rates and tap other monetary tools to fight any global financial shocks, the central bank chief said.

“We have monetary policy space and our current policy settings are appropriate,” Bangko Sentral ng Pilipinas Governor Amando Tetangco said in a speech at a Bloomberg FX forum in Manila late Tuesday, after last week leaving the benchmark unchanged. “There was no strong impetus for us to move policy levers or adjust the stance of monetary policy.”

While policy makers kept the overnight borrowing rate at 3 percent on Aug. 11, they warned that uncertainty on global growth and monetary policy actions in advanced economies call for prudence. A benchmark that’s well-above the U.S. Federal Reserve funds rate gives the Philippines “significant wiggle room” in an environment where some central banks are turning to negative interest rates to boost growth, Tetangco said.

Nations have relied on loose monetary policy to perk up their economies as the global recovery remained slow and uneven. Uncertainty on the pace and timing of a U.S. rate increase, commodity price swings and the U.K.’s exit from the European Union have further dimmed prospects of a smooth economic revival.

‘Array of Tools’

The Philippines has other buffers to weather external risks, Tetangco said, citing healthy foreign currency reserves and a current account surplus. Should headwinds heighten, the central bank is “no longer limited to the policy interest rate” and can tap an “array of tools” including deposit facilities introduced in June, further liberalization of foreign exchange rules and macroprudential measures, he said.

A cut in the banks’ required reserves ratio is also on the table in the next 10 months as monetary authorities continue to mop up excess liquidity through auctions of short-term deposits, said Tetangco, whose second and final term ends in July next year.

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