Boost local demand to tame impact of US slowdown, says BSP chief

The Bangko Sentral ng Pilipinas (BSP) yesterday stressed the need for emerging market economies in Asia need to boost domestic demand at regional and national levels to make up for the slack in advanced economies led by the US. BSP Governor Amando Tetangco Jr. said Thursday in a text message to reporters the US Federal Reserve decision to keep interest rates unchanged at record low levels of zero to 0.25 percent emphasizes the precarious stage the global economic recovery is now in. "The Fed's move, though not entirely unexpected, highlighted the heightened risk that the global recovery faces," Tetangco said. A slower economic recovery in the US would weaken growth in Asia Pacific countries despite the series of rate hikes by central banks in the region late last year and early this year to keep the economies from overheating, the central bank chief pointed out. Monetary authorities should also consider the policy tools available to the Fed as stimulus measures have failed to boost the ailing US economy, Tetangco said. Last month, the Fed said it plans to keep interest rates close to zero until — at least — mid-2013. The move “… makes it even more imperative for EMEs (emerging market economies), particularly those in Asia, to review strategies for growing domestic demand at the national and regional levels," the BSP chief said. Boost economic activity On Wednesday, the Fed kept its target range for federal funds rate at zero to 0.25 percent anticipating economic conditions — low rates of resource utilization and a subdued inflation outlook over the next three to five years — to warrant exceptionally low interest rates at least through mid-2013. It cited recent indicators pointing to the continuing weakness in labor market conditions with a high unemployment rate. Consumer spending in the US managed modest increases in recent months despite some recovery in motor vehicle sales as supply-chain disruptions eased. Amid a low inflation environment in the Philippine, Tetangco said the task of monetary authorities is to ensure policy settings that would boost economic activity. "For the BSP, we will certainly remain mindful of ensuring policy settings that could help sustain the growth we are now enjoying, given the lower inflation risk that is looming," he added. Last Sept. 8, the BSP's Monetary Board kept key interest rates unchanged for the third consecutive policy-setting meeting in tune with the lower-than-expected economic growth in the second quarter and the benign inflation outlook. The BSP kept its overnight borrowing rate at 4.50 percent and its overnight lending rate at 6.50 percent while maintaining the reserve requirement ratio for banks at 21 percent. The reserves ratio is the percentage of bank deposits and deposit substitute liabilities must keep on hand or deposited with the central bank. Philippine output grew by 4 percent in the first half of the year from 8.7 percent a ear earlier, mainly because of weak global trade and underspending by the Aquino administration. In the second quarter, gross domestic product grew by 3.4 percent from 8.7 percent year-on-year. — VS, GMA News