Manila Bulletin

BSP keeps key interest rates on hold

Inflation forecasts unchanged


As the market expected, the Bangko Sentral ng Pilipinas (BSP) did not change its monetary settings during yesterday’s last key rates’ meeting for the year.

This, after the Federal Reserve decided on Thursday to raise US interest rates by 0.25 percent. (Story on B-6)

The central bank also maintained its inflation forecasts for 2017 and 2018 of 3.2 percent and 3.4 percent. The 2019 estimate likewise remains at 3.2 percent, according to BSP Deputy Governor Diwa C. Guinigundo who said credit growth which is on the high side for months, is not yet inflationa­ry.

The BSP has an inflation target band of two percent to four percent for 2017 until 2019. With its continued manageable inflation outlook, it has not changed its policy settings since September 2014 when it raised the benchmarks by 25 bps.

The BSP’s overnight reverse repurchase facility remains at three percent. It also left unchanged rates on the overnight lending and deposit facilities, while the reserve requiremen­t ratios were untouched as well.

Guinigundo, in announcing the Monetary Board decision on behalf of its chairman, BSP Governor Nestor A. Espenilla Jr., said inflation environmen­t is “broadly unchanged” and that average fully-year rates will be within the target range until 2019. But, he said the BSP will remain “vigilant against any risks to the inflation outlook” and it is prepared to adjust its policy settings “as needed to ensure that future inflation remains consistent with the medium-term target while being supportive of sustainabl­e economic growth.” “The overall balance of risks to the inflation outlook remains tilted toward the upside due in part to possible higher crude oil prices,” Guinigundo said in a statement. “While there may be potential transitory effects on consumer prices from the proposed tax reform program, various mitigation measures and the resulting improvemen­t in output and productivi­ty are also expected to temper the impact on inflation over the medium term. Meanwhile, the proposed reforms in the rice industry involving the replacemen­t of quantitati­ve restrictio­ns with tariffs and the deregulati­on of rice imports could serve to reduce inflation.”

The BSP noted that the Monetary Board still views geopolitic­al tensions and “lingering uncertaint­y over macroecono­mic policies in advanced economies” as downside risks to global economic growth.

The BSP reiterated that consumer and business outlooks continue to be optimistic and positive on growth, indicating solid domestic economic activity and financial system liquidity.

“As credit continues to expand in line with output growth, the Monetary Board remains watchful over evolving liquidity and credit conditions and their implicatio­ns for price and financial stability,” Guinigundo said. “Based on these considerat­ions, the Monetary Board believes that prevailing monetary policy settings should be kept.”

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