Philippine Central Bank: No compelling reason for policy shift

MANILA: The Philippine central bank believes there is no urgent need to adjust policy rates at the moment, with inflation becoming less of a risk at home and globally, central bank Governor Amando Tetangco said on Sunday, ahead of a policy meeting this week.

Authorities have more leeway to support growth and have the tools to ensure capital movements would not be disruptive, he said, adding he does not believe there would be large-scale capital outflows from the country. "Monetary policy settings for the moment are appropriate. There isn't a compelling reason now to shift," Tetangco said in an email to reporters.

"There is sufficient liquidity in the system. The challenge really is to utilize that for the economic sectors that can bring the most bang for the buck."

"The BSP (Bangko Sentral ng Pilipinas) will continue to provide the operating environment - low interest rates, stable exchange rates, sound banking system - to help government, businesses and consumers make the best economic choices," he said.

The central bank will review policy at a meeting on Thursday, and analysts widely expect it would keep its interest rates steady at an over two-year high of 4.5 percent even after Indonesia and Singapore eased monetary policy last week.

Earlier this month, the government cut its growth forecast for this year to between 4.5 percent and 5.5 percent from a previous estimate of 5 to 6 percent with weakening trade and a faltering global economy. It also cut its 2012 growth forecast.

But the central bank expects remittances from overseas Filipinos, which fuel domestic consumption and support the Philippine peso, to continue to grow despite expectations of another global economic slowdown, Tetangco said. He added fund inflows were also likely to remain supportive of growth in the local economy.

"Core portfolio funds that have come into the country will remain. On balance, I don't believe flow reversals will be large-scale," Tetangco said. "In any case, the BSP has tools in its enhanced policy kit to ensure capital movements would be non-disruptive."

He said the outlook for domestic inflation remained manageable, with no "undue pressures" on demand or signs of any asset-price bubbles, and with inflation now less of a concern globally.