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BSP may raise key rates next year on Fed move |
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(12 November 2004, Friday - Philippine Daily Inquirer)
By Doris C. Dumlao, Inquirer News Service THE BANGKO Sentral ng Pilipinas, the Philippine central bank, said it might need to increase rates if the US Federal Reserve raises its key interest rates to four percent next year. In a press briefing after the weekly Monetary Board meeting on Thursday, BSP Governor Rafael Buenaventura said he expected the movement in the US Fed rates next year by two percentage points to be "measured increases." "Definitely at two percent, we'll respond or we'll have responded already," Buenaventura said. The US Fed on Thursday raised its benchmark short-term interest rate by another 25 basis points to two percent, on the back of more favorable economic and job market conditions. The move puts the US rates at their highest level since the end of the last recession in 2001, when the rate was slashed to a 45-year low of one percent. Buenaventura said the latest hike was assumed by the BSP during its last policy rate setting, when the policy-making Monetary Board maintained the overnight borrowing rate at 6.75 percent. Buenaventura said oil prices would have a bigger impact on local consumer prices than the interest rate differential with the US. "We still believe that inflation will taper off in 2006 as the bulk of the current pressures are transitory," Buenaventura said. "What we haven't factored in is that if we're successful on all the revenue measures sought by the government, that will increase economic activity and then there will be a rise in demand pressures," Buenaventura said. So far, he said there was no need to tighten the rates because of moderate demand and it was the supply side causing inflationary pressures. "As much as possible we'd like to keep interest rates low," Buenaventura said. As such, he hinted there would be no change in the country's monetary setting during the MB's next policy rate meeting next week. The increase in the US Fed rate normally siphons off capital funds invested in Asia back to the US. The ADB, in its latest economic outlook released on Thursday, projected that the Fed would continue to raise its policy rate at a "measured" pace over the 2004-2005 period. By end-2005, it expects the rate to hit 3.5-4 percent. |
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