Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. said Wednesday the latest move by Bank of Japan to launch a 10-year interest rate target to fight deflation will be one of the major factors the Monetary Board will consider in its policy meeting today.
“The Bank of Japan review of its policy framework and the subsequent ‘yield curve targeting’ wherein BoJ said they would anchor the 10-year yield to zero and the inflation rate target overshooting are seen as signals that further negative rates are to come in the future,” Tetangco said in a text message.
Japan’s central bank took an unexpected step, launching a 10-year interest rate target to step up its fight against deflation, following an internal review of existing measures that failed to achieve 2-percent inflation in a promised two-year time frame.
BoJ also said it would start targeting 10-year interest rates and committed to keep them around zero as part of a new policy framework aimed at stoking inflation.
“After BOJ, market is now looking to see what Fed will announce later tonight. We will include these in our policy rate discussion this week,” Tetangco said. The Federal Open Market Committee is set to meet Sept. 21 to 22.
British bank Hong Kong and Shanghai Banking Corp. said it was expecting Bangko Sentral to maintain the current policy settings Thursday on strong economic growth and low inflation environment.
The Philippine economy grew 6.9 percent year-on-year in the first half, near the upper bound of the Duterte administration’s target range of 6 percent to 7 percent this year.
The growth was driven by election-related spending, strong domestic demand and investments. Experts, however, said the tapering effects of election-related expenditures would impact growth in the second half.
Inflation rate averaged 1.5 percent in the first eight months, below the government’s official target range of 2 percent to 4 percent for 2016.
HSBC said that despite significant outflows from the equity market over the past month to the tune of $310 million that weakened the peso, most excess liquidity in the financial market came from the domestic banking sector.
“As such, there is no need for a response from monetary policy,” HSBC said.