Monetary stance to remain flexible amid low inflation, ample liquidity
Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla Jr. said monetary policy stance remains flexible and will adjust when necessary, enhanced by an arsenal of policy tool kits.
The BSP keeps as clear a signal as they could based on current data when it comes to policy stance.
“We review our setting every six weeks,” Espenilla said. “We have to be flexible. We cannot be rigid (and) we will be able to adjust to the circumstances.”
The BSP chief noted that advanced economies’ monetary authorities such as the US Federal Reserve regularly debates among themselves amid the many uncertainties besetting global markets.
Espenilla said the “environment today is full of uncertainty. You can see this in the struggle in policy-making like a big economy such as the US. A country like the Philippines also need to take on board this uncertainty and we have to be flexible…”
Espenilla chaired his first Monetary Board policy meeting last August 10 and, as expected by the market, the BSP kept overnight rates unchanged on the back of stable inflation and manageable liquidity that are supportive of economic expansion. They also noted the credit conditions and the economy's improving absorptive capacity to sustain the growth path, thus non-inflationary.
The rates on the overnight reverse repurchase (RRP) remained at three percent as well rates on overnight lending and deposit facilities.
“(We) continue to pay close attention to the evolving economic growth and liquidity conditions," said Espenilla, and would make sure these will not derail price and financial stability efforts.
However, while they assess that inflation path remains manageable, the central bank increased the inflation forecast for this year to 3.2 percent from a previous 3.1 percent. For 2018, the forecast is now 3.2 percent versus an earlier estimate of three percent. The inflation target range is at two percent to four percent until 2019.
The central bank has left its policy rates untouched since 2014 on the back of continued manageable inflation path, a brisk economy and an improving – although still challenging – global growth.
The next central bank policy meeting is on September 21, its sixth for the year.
As an inflation-targetting institution, the BSP employs a variety of policy tools such as the RRP or the borrowing rate which is its primary monetary policy instrument. Other tools are the weekly term deposit auction facility, the overnight lending facility and the overnight deposit facility. They also have the rediscounting loans and the BSP’s government securities’ investments.