BSP pauses, keeps key interest rates unchanged

With easing price pressures, the Bangko Sentral ng Pilipinas (BSP) left benchmark overnight rate unchanged yesterday after five straight rate hikes. BSP Assistant Governor Francisco G. Dakila Jr. said that given indications of tempered price pressures, the Monetary Board thought it prudent to keep monetary policy steady for now, and to allow previous monetary responses such as raising the rates by 175 basis points to curb high inflation, some time “to work their way through the economy.”

“The Monetary Board emphasizes that it remains vigilant against developments that could affect the outlook for inflation and financial stability (and that) the BSP is prepared to take further policy action as appropriate to safeguard its price stability mandate,” said Dakila.

The BSP's overnight reverse repurchase (RRP) facility is unchanged at 4.75 percent. The rates on the overnight lending and deposit facilities were also untouched at 5.25 percent and 4.25 percent.

The BSP also reduced its 2019 and 2020 inflation forecasts, as well as its 2018 inflation estimate which is now 5.2 percent from 5.3 percent earlier, during its November 15 Monetary Board policy meeting.

For next year, inflation rate is projected to average 3.18 percent and 3.04 percent for 2020. These numbers are lower than previous forecast of 3.5 percent and 3.3 percent, respectively, for 2019 and 2020.

Dakila said they now expect an earlier return to the two-four percent baseline inflation target than estimated last November 15. He said that by the end of the first quarter 2019, they expect inflation to be below four percent compared to a previous assessment that inflation will only hit below four percent by the end of the first semester next year.

“This is a significant shortening of the time period where we would be above the inflation target band (of four percent) because in the previous policy meetings, we were still expecting for the first half of 2019 (above four percent) and going back within the target band only by the second half of the next year,” according to Dakila.

He said the BSP remains data-dependent but they are also “prepared to take further policy action as appropriate to safeguard its price stability mandate.”