No change in interest rates – BSP

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) kept interest rates unchanged amid robust domestic demand and the continuing manageable inflation environment.

BSP Governor Amando Tetangco Jr. said the central bank’s Monetary Board has decided to maintain key policy rates at four percent for the overnight borrowing and six percent for the overnight lending.

The interest rates on special deposit accounts remained at 2.5 percent while the reserve requirement ratios were likely left unchanged.

This was the 13th straight policy-setting meeting since October 2014 wherein the BSP has decided to keep policy rates untouched.

“The Monetary Board also recognized that while global economic conditions have become weaker since the previous meeting, prospects for domestic economic activity nevertheless remain robust, supported by solid private household consumption and investment, buoyant business sentiment, and adequate credit and domestic liquidity,” he said.

Tetangco pointed out higher fiscal spending is expected to further boost domestic demand.

The BSP chief said inflation expectations for this year have declined slightly due to low inflation readings in recent months, but remain firmly within the two to four percent target band over the policy horizon.

“At the same time, the overall balance of risks surrounding the inflation outlook remains tilted to the downside, with potential downward price pressures associated with slower-than-expected global economic activity, possible second-round effects from lower international oil prices,” he added.

According to Tetangco, upside risks to the inflation outlook could come from the impact of El Niño dry weather conditions on food prices and utility rates as well as pending petitions for power rate adjustments.

Inflation averaged 1.1 percent in the first four months of the year after remaining steady at 1.1 percent in April.

The rise in consumer prices eased to 1.4 percent last year from 4.1 percent in 2014 due to stable food prices and cheaper utility rates.

For his part, BSP Deputy Governor Diwa Guinigundo said the Monetary Board kept its inflation forecast at 2.1 percent for this year and 3.1 percent for next year.

Guinigundo said the lower global economic growth and the recent weakening of the peso against the dollar somewhat offset the higher than expected inflation readings for March and April.

He reiterated inflation expectations for this year and next year remained anchored on the BSP target range of between two and four percent.

According to Guinigundo, the growth of both domestic liquidity and bank lending remains robust.

Meanwhile, Guinigundo said the BSP is set to announce the details of the proposed shift to the interest rate corridor (IRC) system on Monday.

Likewise, agreements would be signed with major shareholders that would be affected by the shift to the IRC framework initially scheduled on June 3.