The Daily Tribune <<< Without Fear or Favor >>>

»HEADLINES

»NATION

Inflation-targeting credited for stability

By Ruben Hortelano

03/31/2009

The inflation-targeting process in crafting monetary policies was credited by a rating agency as among reasons for the economy to grow on a sustained basis through stable prices, BSP Gov. Amando Tetangco Jr. said yesterday.

Global credit rating firm Standard and Poor’s, for instance, noted the impact of the policy-making scheme on the stability of the financial system.

S&P earlier affirmed the country’s credit outlook as “stable.”

“The current credit rating outlook on the Philippines by S&P of stable is supported by our healthy external liquidity position, effective monetary policy engendered by the strong discipline of inflation targetting, as well as a stable and sound banking system that has so far withstood the current global financial turmoil,” Tetangco said.

Most other economies including some of the most advanced in the world have received either a downgrade to their basic credit standing or on their credit outlook after the US subprime mortgage meltdown that has thrown the global economy into recession.

The country, on the other hand, has maintained its sub-investment status as a double B negative-rated country (BB minus) from S&P.

The triple B grade or BBB is considered the minimum grade or threshold alerting potential creditors that a particular sovereign is a good borrower.

The BSP adopted the inflation-targeting approach to monetary policy in 2002 when inflation averaged just three percent from 6.8 percent a year earlier.

The scheme requires the BSP to announce in advance the likely path of inflation over a two-year stretch and crafts monetary policy on this basis instead of setting goals on the basis of monetary aggregates like in the past.

Tetangco said this approach has allowed the BSP to ensure “appropriate (domestic interest rate) levels” and help make possible “the even distribution of liquidity in the system for the efficient functioning of credit markets in support of economic growth.”