A question of timing: The Philippines' low interest rate policy

Monetary policy in the Philippines enters a new arena. It is no longer a matter of lowering interest rates, but whether the Monetary Board should lower rates before the US Federal Reserve does.


For his part, Bangko Sentral (central bank) governor Rafael Buenaventura has declared before the Foreign Correspondent’s Association of the Philippines that, “there is no question we are headed towards low interest rates.”

Today (March 8), the Monetary Board chaired by the BSP governor, with Finance Secretary Alberto Romulo as vice-chairman, will conduct another policy meeting, but is not expected to lower rates until after the March 20 US Federal Reserve committee meeting.

Some government officials, especially the newly appointed National Treasurer Sergio Edeza favors a rate cut one step ahead of the US.

Buenaventura does not readily agree to a pre-emptive rate cut, preferring instead to await the Fed meeting results. However, he emphasizes that the rate cut is just “a question of timing.”

Currently, the overnight RRP (reverse repo) rate is 11.0%, while the RP (repurchase) rate is 13.25%.  

February’s inflation rate was 6.7%, down from 6.9% from the previous month and is expected to lower further this month due to renewed economic activity under the administration of  Gloria Macapagal-Arroyo.

The peso is currently trading at Ps47.7 to the dollar, but Buenaventura says he is optimistic that it will strengthen to Ps46.

Arroyo took over as President of the Philippines on January 20, when the military and the cabinet abandoned support for President Joseph Estrada following allegations that latter received gambling pay-offs and corporate kickbacks. Last Friday, the Supreme Court denied Estrada’s claim to the Presidency by stating that Estrada had effectively resigned from the post.

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