Philippines Central Bankers holds Monetary Policy rates but raises Reserve Ratio

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27th March 2014

The central bank of the Philippines maintained its policy rate at 3.50 percent, along with its other rates, but raised the reserve requirement by one percentage point and said “it will consider further adjustments in its policy tools to safeguard price and financial stability.”
    Bangko Sentral ng Pilipinas (BSP), which has kept its benchmark overnight borrowing rate steady since October 2012, said the reserve requirement was raised to “guard against the potential risks to financial stability that could arise from continued strong liquidity growth and rapid credit expansion.”
    The bank said it held its main rate steady because the the path of inflation is likely to remain within the central bank’s target ranges of in 2014 and 2015 but “buoyant domestic growth prospects allow some scope for a measured adjustment in the BSP’s policy instruments amid the ongoing normalization of monetary policy overseas.”
    The central bank – which targets inflation this year of 4.0 percent, plus/minus one percentage point, and 2015 inflation of 3.0 percent, plus/minus one percentage point – said inflation expectations were broadly aligned with the target though “the balance of risks to the inflation outlook continue to be skewed to the upside, with potential price pressures emanating form pending petitions for adjustments in utility rates and from the possible increases in food and oil prices.”
    Financial markets had been expecting the Philippine central bank to start tightening its policy after the central bank governor last week told reporters that an early and gradual adjustment of monetary policy rather than discreet movements would be less disruptive to businesses.
   Inflation in the Philippines eased slightly to 4.1 percent in February from January’s 4.2 percent but started accelerating in September due to higher food prices from adverse weather.
   Last month the BSP also said the risks to the inflation outlook were “slightly weighted” to the upside but also described inflation as manageable.
    The country’s Gross Domestic Product rose by 1.5 percent in the fourth quarter from the third quarter for annual growth of 6.5 percent, down from 6.9 percent in the third quarter.
    Earlier this week, two banks said they expected the BSP to raise either the 2.0 percent rate on its Special Deposit Account (SDA) or the 18 percent reserve requirement. Last year the central bank cut the SDA rate three times by a total of 150 basis points to reduce the inflow of foreign capital to and divert the funds to more productive economic use

Philippines holds rate, raises RR, to mull further tightening – Central Bank News.

Philippines Central Bank holds Interest rates, says inflation is manageable

Posted on Updated on

6th February 2014

The Philippines’ central bank held its policy rates steady, as widely expected, describing inflation as “manageable” and forecast to remain within the central bank’s target ranges this year and 2015.
    The Central Bank of the Philippines (BSP), which has maintained its overnight borrowing rate at 3.50 percent since October 2012, acknowledged that the balance of risks to the inflation outlook remains “slightly weighted towards the upside” given the pending petitions for higher utility rates and the possible rise in food prices.
    Inflation in the Philippines has been accelerating the last five months, hitting 4.2 percent in January, the highest since November 2011 mainly due to higher food prices from adverse weather. The central bank targets inflation at a midpoint of 4.0 percent in 2014, plus/minus 1 percentage points, while in 2015 the inflation target is 3.0 percent, plus/minus 1 percentage point.
    The decision by the BSP’s monetary board was expected following a text message sent by the governor, Amando Tetangco, to reporters on Wednesday in which he said the bank still had room to keep rates steady but that room may be narrowing due to the risks to the inflation outlook.
    In addition to the impact on food prices from Typoon Haiyan, import prices are also likely to be under pressure from the decline in the Philippine peso.
    The peso lost 7.5 percent against the U.S. dollar in 2013 and has lost a further 1.7 percent so far this year, trading at 45.18 to the dollar today.
    The BSP said the global economy had become more challenging due to heightened financial market uncertainty following the adjustment of monetary policy in the United States and concern over the sustainability of growth in emerging market economies.
    But the BSP said domestic activity is likely to stay firm, with buoyant demand, strong fiscal and external positions, as well as favorable consumer and business sentiment supporting the economy.
    The Philippines’ Gross Domestic Product expanded by 1.5 percent in the fourth quarter of last year from the third quarter for annual growth of 6.5 percent, down from 6.9 percent.

Philippines holds rates, says inflation is manageable – Central Bank News.

Global Central Banks Monetary Policy Weekly Review for week ended May 4, 2013

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Monetary Policy Week in Review – May 4, 2013: Europe, India cut rates, Fed assures QE depends on economy – Central Bank News.

 Last week 11 central banks took policy decisions with six banks keeping rates steady (Angola, Albania, the United States, the Czech Republic, Romania and Uganda), Bulgaria raising its rate and four banks cutting rates, most notably the European Central Bank (ECB) and theReserve Bank of India (RBI) along with Denmark and Botswana.
    Both the ECB and the RBI cut their key rates by 25 basis points, both rate cuts were widely expected and both central banks appealed – almost in unison – to their respective governments to get busy on reforming their economies as the problems, as ECB President Mario Draghi said, “cannot be fixed by monetary policy.”
    That sentiment was echoed by the RBI, which said “recent monetary policy action, by itself, cannot revive growth.”
    But that is where the similarities end.
   While Draghi said the ECB is “ready to act if needed,” including pushing the deposit rate into negative territory, the RBI cautioned there was  “little space for further monetary easing” due to inflationary pressures.
    Despite his willingness to act, Draghi is running out of options to reverse Europe’s shrinking economy. Large banks can draw all the money they need from the ECB at a refinancing rate of 0.50 percent while banks that rely on the interbank market for funds pay 6-7 basis points, or “almost zero, ” as Draghi said.
    And a plan to funnel loans to small and medium-sized businesses, mentioned by Draghi last month, turns out to be a very complex undertaking that will not happen in the near term.
    “The ECB cannot clean bank’s balance sheets,” Draghi said, admitting that he was frustrated that his efforts were not ending up with “better welfare, lower unemployment and better economic activity” in the 17-nation euro area.
    The core of the problem is that 80 percent of all loans or credits to businesses in Europe go through the banking system but banks are getting weaker and less able to lend as the ongoing recession increases the share on non-performing loans and toxic assets on their books. Some banks will now have to strengthen their capital base.
    “In Europe, you have to go through banks. You don’t have capital markets of the kind you have in the United States, so that we have to proceed via the banking system,” Draghi said, adding that 80 percent of all financial intermediation in the U.S. goes via capital markets.
    So together with the European Investment Bank (EIB), the ECB is working on ways to package and thus create a market for such loans, known as asset-backed securities (ABSs).
    But it’s far from an easy task and the outcome is far from clear.
    “We do not have a precise position on what we will do,” Draghi admitted, “you have to consider that the ABS market is dead and has been dead for a long time.”
    Another important event in central banking this week was the Federal Reserve’s  statement that it may either increase or decrease the amount of assets it will be purchasing, depending on the state of the U.S. jobs market and inflation.
    Like the Bank of Japan and the Bank of England, the Federal Reserve has been engaged in purchasing various assets, mainly government bonds, to keep long-term interest rates low as a way to  stimulate economic activity when official policy rates hit the zero bound.
    While the Federal Reserve is still sticking to its current plan of buying $85 billion worth of Treasuries and housing-related debt a month, the issue of how and when it will start to curtail these purchases weigh heavily on investors’ minds.
    Although the Federal Reserve has assured markets that its “exceptionally” low target for the federal funds rate will remain in place for quite a while, any sign that it will reduce its asset purchases seems likely to be interpreted as the start of monetary tightening, sending shockwaves through financial markets.
      Every word uttered by members of the Federal Open Market Committee of how and when the Federal Reserve will start to normalize monetary policy is causing jitters in markets, and the debate is likely to dominate sentiment for months.
    Signs of an improving U.S. economy is immediately met by expectations that the Federal Reserve will wind down asset purchases while signs of a worsening economy is seen as a reason for expanding asset purchases.
    By now officially linking its asset purchases to inflation and the jobs market – just like the federal funds rate – the Federal Reserve is seeking to soothe investors’ frayed nerves: Don’t worry, monetary policy will first be tightened when the economy is strong enough to handle it.
    Through the first 18 weeks of this year, 20 percent of the 168 policy decisions taken by the 90 central banks followed by Central Bank News have lead to rate cuts, up from 19 percent after the first 17 weeks.
    Central banks in emerging markets account for 38 percent of this year’s rate cuts, but thanks to this week’s cut by the ECB and Denmark, the ratio of rate cuts by banks in developed markets tripled to 9 percent from 3 percent.
    Central banks from other markets – such as Botswana this week and Mongolia and Georgia in past weeks – account for 41 percent of all rate cuts this year.
    But the overwhelming majority of this year’s decisions by central banks, 76 percent, have gone in favour of holding rates on hold following last year’s spree of rate cuts and the slow, but gradual improvement of the global economy.
ANGOLA 10.00% 10.00% 10.25%
BOTSWANA 9.00% 9.50% 9.50%
BULGARIA FM 0.02% 0.01% 0.15%
ALBANIA 3.75% 3.75% 4.25%
UNITED STATES DM 0.25% 0.25% 0.25%
EURO AREA DM 0.50% 0.75% 1.00%
CZECH REPUBLIC EM 0.05% 0.05% 0.75%
DENMARK DM 0.20% 0.30% 0.60%
ROMANIA FM 5.25% 5.25% 5.25%
UGANDA 12.00% 12.00% 20.00%
INDIA EM 7.25% 7.50% 8.00%
    Next week (week 19) features 13 central bank policy decisions, including Australia, Sri Lanka, Norway, Malawi, Poland, Georgia, South Korea, United Kingdom, Malaysia, Peru, Egypt, the Philippines and Mozambique. New Zealand will be issuing its financial stability report on May 8.
    In addition, the U.K is hosting the spring meeting of Group of Seven (G7) finance ministers and central bank governors on Friday and Saturday. The G7, which has met regularly since 1976, comprises Canada, France, Germany, Italy, Japan, the UK and the USA. Representatives of the European Union, the ECB and heads of international financial institutions also attend the meetings.
COUNTRY MSCI              DATE               RATE        1 YEAR AGO
AUSTRALIA DM 7-May 3.00% 3.75%
SRI LANKA FM 7-May 7.50% 7.75%
MALAWI 7-May 25.00% 16.00%
NORWAY DM 8-May 1.50% 1.50%
POLAND EM 8-May 3.25% 4.75%
GEORGIA 8-May 4.50% 6.00%
SOUTH KOREA EM 9-May 2.75% 3.25%
UNITED KINGDOM DM 9-May 0.50% 0.50%
MALAYSIA EM 9-May 3.00% 3.00%
PERU EM 9-May 4.25% 4.25%
EGYPT EM 9-May 9.75% 9.25%
PHILIPPINES EM 10-May 3.50% 4.00%
MOZAMBIQUE 10-May 9.50% 13.50%