PHL can absorb Fed rate adjustments – BSP exec

April 14, 2014 7:25 am 

By Joann Santiago

BAGUIO CITY, April 13, 2014 (PNA) – – An official of the Bangko Sentral ng Pilipinas (BSP) said the Philippines central bank still has room to maneuver vis-à-vis any policy adjustments by the Federal Reserve.

BSP Deputy Governor Diwa Guinigundo said the Philippine central bank’s policy rates is now at record low of 3.5 percent but this remains higher than the zero to 0.25 percent key rate of the Fed.

Also, rate of the central bank’s special deposit account (SDA) facility is at two percent.

“We still have the maneuvering room not only to hold on to those rates but even to consider a possible increase in those rates should the US fed decides to further cut down its monthly stimulus or increase their own policy rate in 2015,” he said.

The Fed has started cutting its stimulus program as the US economy continue to bring out positive economic developments.

Its Federal Open Market Committee (FOMC) cut by a total of USD 20 billion the original USD 85 billion monthly bond purchases as it sees the need to slowly withdraw the stimulus program because of better output by the world's largest economy.

This made analysts project that the stimulus program will be fully withdrawn by the end of 2014 and the Fed will start increasing key rates in 2015.

Some central banks have started tightening their key rates and should this be the case for the BSP Guinigundo said the economy is strong enough to absorb it.

”The economy can absorb it because at the present we’re able to grow by seven to eight percent,” he said.

The central bank official attributed the resiliency of the domestic financial market to continued enhancement of in several areas like banking sector regulations, which greatly supports domestic growth and inflation targets among others.

“We have stronger macrofundamentals enabling the government and the BSP to undertake policy measures that are important and necessary,” he said.

Relatively, Guinigundo said the economy’s potential capacity has increased over the years from four to five percent in 2000 to about six to eight to date, partly boosted also by the rise in efficiency gains.

”This is the reason why we have very good convergence of sustained growth amid low inflation environment,” he added. (PNA)

FPV/JS

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