BSP keeps interest rates unchanged

Despite inflation uptick

As expected, the Bangko Sentral ng Pilipinas (BSP) kept key overnight rates unchanged during yesterday’s Monetary Board policy meeting. The BSP maintained the overnight borrowing rate at 3.0 percent and the lending rate at 3.5 percent.

While still looking at a manageable inflation path, the BSP yesterday said it sees average inflation of 3.5 percent for this year and 3.1 percent for 2018. The 2017 and 2018 forecasts are higher than previous estimates of 3.3 percent and three percent. The inflation target band is two percent to four percent.

The BSP action is based on assessment that while inflation is rising because of increases in food and oil prices, the baseline inflation path remains within the target band for 2017 and 2018.

The Monetary Board also noted that the “balance of risks surrounding inflation outlook continues to be weighed toward the upside, given possible adjustments in electricity rates as well as the initial impact of the government’s broad fiscal reform program.”

On global risks, the BSP continues to see this as challenging particularly with the ongoing normalization of US policy rates. But, it added, domestic activity “is expected to stay firm, supported by buoyant household consumption and private investment, increased fiscal spending, and ample credit and liquidity.”

BSP Governor Amando M. Tetangco Jr. has said inflation rate will have a “slow path” of movement and not a rapid increase despite a two-year high January inflation.

Tetangco’s comments followed the government’s announcement of a 2.7 percent inflation number for the first month of the year, up from December’s 2.6 percent. The uptick was because of higher increments in clothing and footwear, health and transport, among others, he said.

Tetangco said the January inflation was within the BSP’s forecast of 2.3 percent to 3.2 percent for the period and still “consistent with our expectation that inflation will follow a slow path to within the target range.”

“We are closely monitoring developments, including the emerging form and magniture of the tax reform program,” he said. Also closely watched is the situation in the global markets or the external front – “and their impact on our own price and growth dynamics,” added the BSP chief.