BSP  RULES  OUT  RATE  CUTS

MANILA, SEPTEMBER 23, 2007
(STAR) By Des Ferriols - The country’s monetary authorities said an out-of-schedule adjustment in policy rates was out of the question, quelling market speculations that a special policy meeting was about to be called in reaction to the drastic reduction in US interest rates.

Emerging from a meeting of the Monetary Board (MB), Bangko Sengral ng Pilipinas Deputy Governor Diwa Guinigundo told reporters that the next monetary policy meeting would be held as scheduled on Oct. 4.

“Adjusting our monetary policy before the Oct. 4 meeting is out of the question,” Guinigundo said, reacting to market rumors that the action of the US Federal Reserve Board last week would prompt the BSP to move ahead of the scheduled meeting next month.

“We don’t see any event that will warrant an out-of-schedule meeting to discuss monetary policy,” Guinigundo said. “We have a very stable financial market at this point and there really is no need to react out of synch with our usual schedule.”

Guinigundo said the review of monetary policy settings would be held as scheduled in October, adding that the BSP’s strategy of inflation targeting to stabilize domestic prices “required discipline.”

Banks have been speculating since Tuesday that the BSP would be forced to make a move before its Oct. 4 meeting, specifically anticipating a possible cut in the central bank’s headline policy rates.

Market players said the magnitude of the US Fed’s move warranted a corresponding preemptive move by the BSP, but Guinigundo said this would not happen.

BSP Governor Amando M. Tetangco Jr. only admitted the move gave them “room to maneuver.”

According to Tetangco, the action of the US Federal Reserve was widely expected but the size of the cut and the statement that accompanied the decision had a more dramatic impact on markets.

Criticized by some market analysts as an over-reaction to the credit woes in the US housing market, the US Fed slashed its interest rates by a half-percentage point that analysts said signaled the preference towards doing too much rather than too little.

But Tetangco said such a move would only form part of the array of factors that the MB would examine at its next policy meeting since there were other monetary aggregates to consider.

“The action of the US Fed is among the factors we consider to the extent that it provides us with the guideline on how it reads the market,” Tetangco said. “This latest move gives us some room to maneuver in our own rate setting, given that the outlook for inflation continues to be benign.”

According to Tetangco, the BSP’s standing assessments showed that the risk to the government’s inflation outlook appeared to be manageable, including liquidity growth.

Tetangco said the only real concern at the moment was the possibility that the price of oil would remain at the current high levels since the effect of a prolonged price hike would eventually trickle down to the demand-side.

“If this level of oil prices is sustained over a prolonged period, it could push inflation rate up,” he said. “But then other things are also moving such as the peso-dollar exchange rate. We can’t speculate this early.”

The BSP last touched its policy settings when it reduced interest rates in July, cutting borrowing rates by 150 basis points to 6.0 percent while removing a tiering system for bank deposits.


Chief News Editor: Sol Jose Vanzi

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