BSP eyes further rise of global liquidity

Facade of Banko Sentral ng Pilipinas / Wikipedia Photo

MANILA — Global liquidity environment is expected to continue to remain fluid after the European Central Bank (ECB ) on Thursday cut interest rates on its key monetary facilities.

Specifically, rate of ECB’s main refinancing operations was slashed off 10 basis points to 0.15 percent, the marginal lending facility by 35 basis points to 0.40 percent, and the deposit facility by 10 basis points to -0.10 percent. All these will take affect on June 11, 2014.

Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr., in a text message to reporters, said the ECB’s decision ”is a clear sign of asynchronicity in the stance of monetary policies of the advanced countries.”

”In a way, this should be favorable from a global liquidity point of view,” he said.

The BSP chief, on the other hand, clarified that the impact of the ECB’s decision on each economy and currency ”is likely going to be different” so ”the needed policy responses may also vary.”

”For the BSP, we will include this development in our discussion during our next policy meeting,” he said.

”In the meantime, we will continue to closely watch out for shifts in global investor sentiment and monitor movements in our own financial markets, and any financial stability pressures that these may bring about,” he added.

BSP’s policy-making Monetary Board (MB ) will have its rate setting meet this month and it is widely expected to cut its key rates by 25 basis points as inflation continues to rise.

To date, the BSP’s overnight borrowing or reverse repurchase (RRP) rate is at record-low of 3.5 percent and the overnight lending or repurchase (RP) rate is at 5.5 percent.

These were last adjusted in October 2012 when it was cut by 25 basis points.

In 2012, the BSP key rates were slashed off a total of 100 basis points to help ensure domestic growth on back of low inflation environment.

Last May, rate of price increases rose to 4.5 percent from month-ago’s 4.1 percent on faster rate of price increases of food index among others.

However, inflation in the first five months this year remains within the government’s three to five percent target for the year with the average at 4.1 percent.