BSP keeps rates unchanged

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) decided yesterday to keep benchmark rates steady anew as inflation remains manageable.

BSP Governor Nestor Espenilla Jr. said the Monetary Board retained the interest rate on the overnight reverse repurchase facility at three percent as well as the corresponding interest rates on the overnight lending and deposit facilities based on the assessment that inflation outlook remains manageable.

He said the reserve requirement ratio was also left unchanged at 20 percent.

“The Monetary Board’s decision is based on its assessment that the outlook for the inflation environment has been broadly unchanged,” he said. The BSP has set an inflation target of two to four percent between 2017 and 2020.

According to Espenilla, the overall balance of risks to the inflation outlook remains tilted toward the upside due in part to possible higher crude oil prices.

“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,” he said.

He explained 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 chief pointed out the central bank also observed that geopolitical tensions and lingering uncertainty over macroeconomic policies in advanced economies continue to pose downside risks to the near-term prospects for global economic growth.

“Nonetheless, the Monetary Board emphasized that prospects for domestic economic activity are likely to remain firm owing to buoyant consumer and business sentiment and ample liquidity,” Espenilla said.

As credit continues to expand in line with output growth, he added the Monetary Board remains watchful over evolving liquidity and credit conditions and their implications for price and financial stability.

“Based on these considerations, the Monetary Board believes that prevailing monetary policy settings should be kept,” he said. The BSP has kept interest rates unchanged over the last three years as it last raised policy rates in September 2014.

He assured monetary authorities would remain vigilant against any risks to the inflation outlook and would 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.

For his part, BSP Deputy Governor Diwa Guinigundo said the central bank kept its inflation forecast of 3.2 percent for this year, 3.4 percent for 2018, and 3.2 percent for 2019.

Inflation eased to 3.3 percent in November after kicking up to a three-year high of 3.5 percent in October bringing the average to 3.2 percent in the first 11 months of the year.

He said the increase of oil prices in the world market to a range of $62 to $65 per barrel would not be enough to offset the central bank’s inflation forecast of two to four percent.