BSP puts key policy rates on hold
As expected by the market, the central bank policy rates were put on hold during yesterday’s Monetary Board meeting, its sixth this year.
Inflation forecasts were also left untouched at 3.2 percent for 2017 and 2018, the same estimates the Bangko Sentral ng Pilipinas (BSP) announced during its previous policy meeting last August 10. The 2019 inflation projection is also 3.2 percent.
BSP Governor Nestor A. Espenilla Jr. yesterday said they continue to see a manageable inflation environment and that the future inflation path will settle within the target range of two percent to four percent in 2017 until 2019. He noted that the inflation expectations “remain firmly anchored close to the midpoint” of the BSP target.
On Thursday, the BSP maintained overnight rates or the overnight reverse repurchase at three percent. They also left rates on the overnight lending and deposit facilities untouched, as well as the reserve requirement.
The balance of risks to the inflation outlook is still seen on upside, Espenilla said. “While the proposed tax reform program may exert potential transitory pressures on prices, various social safety nets and the resulting improvement in output and productivity are also expected to temper the impact on inflation over the medium term.”
“At the same time, while prospects for global economic growth have stayed broadly upbeat, geopolitical tensions and lingering uncertainty over macroeconomic policies in advanced economies continue to pose downside risks to external demand,” he added.
The BSP chief also said that the outlook for domestic economic activity “remains firm
(and) supported by positive consumer and business sentiment and ample liquidity.” As such, credit growth is in line with output growth. “The economy’s absorptive capacity is likewise seen to improve, thus mitigating inflation pressures over the long run.”
The BSP is closely watching growth and liquidity conditions to continue to have a pre-emptive stance and to ensure financial and price stability. “The Monetary Board believes that prevailing monetary policy settings continue to be appropriate … BSP will continue to be vigilant against any risks to the inflation outlook and will adjust its policy settings as needed to ensure stable prices while supporting sustainable economic growth,” said Espenilla.
The BSP has not changed the borrowing rate – its primary monetary policy tool – since 2014. However, in June of 2016, it adopted the interest rate corridor (IRC) framework for conducting its monetary operations to guide short-term market rates towards the central bank’s borrowing or RRP rate. Under this new system, it adjusted the RRP rate from four percent to three percent but the shift to IRC as emphasized by the BSP, was not an adjustment of its monetary policy stance.