Philippine cbank urges China to provide more policy clarity

MANILA: China should communicate with greater clarity the intent of its monetary policies in order to guide the market and reduce volatility, the Philippine central bank governor said on Wednesday.

Amando Tetangco, governor of the Bangko Sentral ng Pilipinas, said recent developments in the Chinese economy and financial markets were "adding a layer of complication to the market", and so policymakers elsewhere would find it useful if the world´s second largest economy clearly relays its policy guidance.

"In a situation like this, clearer communication from the authorities will always be useful to help guide the market to avoid overshooting. Markets have a tendency to overshoot, which means if you are able to minimise overshooting, you also tend to reduce volatility," Tetangco, a career central banker, told Reuters in an interview.  The slowdown in China, fragile and uneven global economic growth prospects as well as policy divergences among advanced economies are some of factors the central bank is closely watching for their potential impact on trade, remittances and capital flows, Tetangco said.

But the central bank chief said its policy decisions will continue to be data dependent.

Tetangco said the monetary authority´s decisions do not have to move in sync or in the same magnitude as the U.S. Federal Reserve's actions, as he reiterated that the Southeast Asian economy does not need additional stimulus.

"While a number of central banks have eased their policy settings to stimulate domestic economic activity amid a benign inflation environment, we in the Philippines don't see the need to provide further stimulus to the economy at the moment," Tetangco said.

The central bank has left its key policy rate steady at 4.0 percent since October 2014, and analysts in a December poll expected no change throughout the first half of 2016.

Fourth-quarter data on Thursday is expected to show the Philippine economy expanded 2.2 percent in October-December from the previous quarter, twice as fast as in July-September, according to a Reuters poll.

The resilient economy has managed to largely shrug off a global chill, as strong private consumption and higher government spending has cushioned the impact of weak exports.  "In a period of volatility, investors will continue to scrutinise an investment destination's fundamentals. This is why we continue to work to keep the country´s positive growth prospects and sound macroeconomic fundamentals as pull factors to keep portfolio investments in the Philippines," Tetangco said.

The Philippine central bank will start using an "interest rate corridor" from the second quarter of this year and use a new term deposit auction facility to guide market interest rates towards its main policy rate.

Tetangco reiterated that the interest corridor system, or IRC, is an operational adjustment and is not meant to reflect a change in the country´s monetary policy stance.

Under the IRC framework, the term facilities of the central bank - special deposit account (SDA), reverse repurchase and repurchase - will be converted to an overnight facility.

"These adjustments are also intended to address the present divergence between market interest rates and the BSP policy rate," Tetangco said.