BSP keeps policy rates unchanged

MANILA, March 12 (PNA) - The Bangko Sentral ng Pilipinas kept its policy rates unchanged on Thursday but announced the withdrawal of liquidity-boosting measures that helped keep the economy afloat last year.

The withdrawal was an affirmation that the current interest rate settings remained appropriate for the country’s growth requirements but that some growth-boosting measures adopted in response to the global financial downturn had to be withdrawn at a carefully measured pace.

BSP Governor Amando M. Tetangco Jr, in his first official act six weeks after undergoing an arterial heart bypass, said the central bank’s rediscounting budget had been reduced to only P40 billion from P60 billion.

The value of loans banks put up for rediscounting purposes has also been restored to 80 percent instead of 90 percent.

The reductions ensure moves to prevent inflation from rising at an unacceptable rate over the policy horizon as money supply is kept at a level considered appropriate for the country’s growth goal of up to 3.6 percent this year in terms of the gross domestic product (GDP).

Hiking the rediscounting budget to P60 billion and maxing the rediscounting value to 90 percent previously gave the banks access to more money for lending every time they tapped the BSP rediscounting window.

With the reduction, access to peso liquidity is effectively reduced.

In addition, the rediscounting privilege has also been tightened as the BSP now requires the banks to have non-performing loan ratios only two percentage points higher than prevailing industry average whenever they approach the rediscounting window.

Under the old liquidity-boosting regime of the recent past, banks were granted a 10-percentage point leeway, which ensured many banks access to the rediscounting window.

“Given ample liquidity and the continued stability of financial markets, the Monetary Board also decided to phase out liquidity-boosting crisis response measures, effective 15 March 2010,” Tetangco said.

These adjustments came in the wake of reports that previously anemic Philippine exports have bounced back, increasing the momentum in domestic economic activity and with it the likelihood that price pressures will rise as well.

“Latest export numbers have been quite strong, and export growth is likely to gain more traction as the global economic outlook improves.

“While the recent pick-up in inflation has emanated largely from the supply side, conditions warrant a closer monitoring of upside risks – which include the food supply impact of the El Nino weather phenomenon, power supply concerns, possible demand for wage adjustments and global commodity price increases – as these could lead to9 a build-up in inflationary pressures and inflation expectations,” Tetangco said. (PNA)
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