malaysiangManaging how markets react to key rate decisions of central banks and developments on inflation is now easier given the change in economic developments as well as the adjustments in the Bangko Sentral ng Pilipinas’ (BSP) policy instruments, a senior BSP official said on Tuesday. In his speech during the post-State of the Nation Address (SONA) Philippine Economic Briefing at the Philippine International Convention Center (PICC) in Pasay City, BSP Deputy Governor Francisco Dakila Jr. said the economic and financial environment has changed from last year. He said inflation is now on its downward path unlike last year when it was on upward trajectory due largely to the impact of Russia’s invasion of Ukraine. This geopolitical event has resulted in upticks in global oil and commodity prices and supply constraints. As the inflation rate has slowed, with the June 2023 level down to 5.4 percent and the Federal Reserve is expected to again pause during its July 25-26 meeting, Dakila said ‘the situation now is very different compared to what it was (last year).’ ‘The Board will take that into account in coming up with appropriate monetary policy action,’ he said, referring to the central bank’s policy-making Monetary Board (MB). In an interview by journalists after the economic briefing, Dakila said markets’ reaction on the interest rate differential is not as significant as before since market players now consider the Fed’s tightening moves to be on the late stages already. ‘And the markets even anticipate the possibility of a pause and an adjustment by the Fed sometime next year,’ he said in Filipino. Along with this factor is the enhancements on the BSP’s policy instruments ‘which should help to improve yung pass through, yung influence ng ating instruments dun sa market rates (which should help to improve the pass through or the influence of our instruments on market rates).’ Among these changes are the introduction of the 56-day BSP bill and the still fixed rate but full allotment for the overnight reverse repurchase (RRP) facility. Dakila also disclosed the plan on a variable rate for the RRP since it will eventually be offered through an auction like the BSP Bills. These enhancements, he said, will help manage any market reaction on the rate decisions of the BSP and the Fed. ‘But of course, the messaging of the Board is we are always ready to act depending on the latest available data,’ he added.
Source: Philippines News Agency
