ASEAN KEY DESTINATIONS
Philippines credit conditions normalizing
The Bangko Sentral ng Pilipinas (BSP) said it has taken steps toward normalizing the country’s credit condition, brushing aside suggestions it was behind the curve with respect to fighting inflation. BSP Governor Amando Tetangco Jr. told reporters that the central bank has withdrawn part of the stimulus package, such as the higher rediscounting facility, which was drawn up to prevent credit from freezing in the domestic financial market.
“In our case the inflation rate has not moved up significantly unlike in other countries. During the financial crisis all countries reduced interest rates to as low as 500 basis points to provide liquidity in the banking and economic sectors. We also did that, but we reduced the rates by only 200 basis points and that spread during a period of several months, which made our interest rates to remain positive in real terms. So, we’re OK,” Tetangco said.
Some pundits said that the BSP lagged behind its Asian peers in raising interest rates, pointing to the Philippines’ vulnerability to higher inflation amid the large weight assigned to food in the local consumer price index.
But Tetangco said monetary authorities will “closely monitor upside risks to inflation and respond accordingly to keep inflation within our medium-term target.”
“The external sector is expected to remain in the pink of health amid surging capital inflows. We will continue therefore to implement appropriate macro-prudential measures to ensure that these inflows will be used to improve the country’s productive capacity . . . rather than finance asset price bubbles,” he said.
“We assess the inflation outlook given the developments during this intervening period and come up with an overall evaluation of the price situation. The inflation outlook, plus the other factors that can affect the inflation forecast. On that basis we will make a decision on the policy interest rates,” he added.
The market consensus is for the central bank to start raising interest rates by 25 basis points in the second quarter and another 25 basis points toward yearend for a total of 50 basis points increase in 2011.
The BSP set a 3 percent to 5 percent inflation target for this year and for 2012.
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