Tetangco Says Philippines Can Hold Rate for Much of 2015Karl Lester M. Yap and Cecilia Yap
The Philippine central bank can hold its benchmark interest rate for most of 2015 even as a lower inflation forecast gives policy makers more room to maneuver, Governor Amando Tetangco said.
“If things remain as they are, that is inflation expectations are well anchored, domestic demand continues to be resilient, oil prices remain low but not too volatile and Fed normalization is orderly, I think we can keep rates steady for the most part of 2015,” Tetangco said in an interview with Rishaad Salamat on Bloomberg Television from Manila on Friday.
Bangko Sentral ng Pilipinas held its benchmark at 4 percent yesterday and cut inflation forecasts for this year and next. The central bank will watch for the possible effects of sustained low crude prices on global growth and any risk of a delayed increase in U.S. interest rates because of cheap oil, Tetangco said.
“He’s very comfortable with the inflation outlook,” said Euben Paracuelles, a Singapore-based senior economist at Nomura Holdings Inc. “As long as it stays within target there’s no need to move either way. They could think about easing only if inflation falls below 2 percent for a sustained period,” he said, referring to the lower end of the central bank’s 2 percent to 4 percent goal for this year and next.
The peso gained 0.2 percent to 44.26 per dollar as of the noon break in Manila, according to Tullett Prebon Plc. Philippine stocks climbed the most in more than a week, holding near a record. The yield on bonds due August 2024 fell for a second day, according to midday fixing prices at Philippine Dealing & Exchange Corp.
While the inflation outlook gives policy makers more room, firm demand, uncertainty over oil prices, and minimal deflationary risk are being considered, Tetangco said, when asked if there’s more scope to ease monetary policy.
“Real lending rates in the Philippines are the third lowest in the region,” he said. “We kept rates steady because we believe that this is consistent with a symmetric inflation targeting approach. We felt that we had room to wait for additional data to see if the lower end of our target range, for instance, will be breached for a persistent period.”
The Philippine economy expanded 6.9 percent in the three months through December from a year earlier, the fastest in five quarters. Consumer prices rose 2.4 percent in January from a year earlier, the slowest pace since August 2013.
“Consumption will benefit from a steady low-rate environment and will help boost company profits,” said Marc Bautista, head of research at Metropolitan Bank & Trust Co. in Manila. “There’s low cost of funds for businesses, while interest rates on government bonds could remain steady or even go down.”