Bangko Sentral ng Pilipinas stands firm vs rate changes

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) decided yesterday to keep its policy rates unchanged as it expects the average inflation for 2015 to fall below the target.

BSP Governor Amando Tetangco Jr. said the Monetary Board decided to keep the overnight borrowing rate at four percent and the overnight lending rate at six percent.

Tetangco said the BSP also maintained the interest rates on term reverse repurchase facility, repurchase facility as well as special deposit accounts.

The reserve requirement ratios for banks were also maintained.

According to Tetangco, the decision to keep key policy rates unchanged was based on the Monetary Board’s assessment that prevailing price and output conditions support maintaining current policy settings.

“In deciding to keep the BSP’s monetary policy settings unchanged, the Monetary Board observed the recent benign inflation outturns have been a result of favorable supply-side conditions, which are seen as largely transitory,” Tetangco said.

The BSP chief pointed out inflation is projected to rise gradually and stabilize within the lower half of the inflation target.

Inflation eased to a new record low of 0.8 percent in July from 1.2 percent in June bringing average inflation to 1.9 percent in the first seven months of the year on the back of easing food prices.

“Latest baseline forecasts show inflation could settle slightly below the target range for 2015, but is likely to remain within the target range,” he said.

The BSP sees inflation averaging between two and four percent this year.

Tetangco told reporters monetary authorities noted the upside risks coming from pending petitions for power rate adjustments and the impact of stronger-than-expected El Niño dry weather conditions on food prices and utility rates.

However, he explained the modest rise in food and commodity prices as well as slower global economic activity could pose downside risks to inflation.

 “At the same time, the Monetary Board noted recent developments on the global front require careful monitoring, as they could pose threats to financial stability,” Tetangco said.

The BSP, he explained, believes prevailing monetary settings remain appropriately calibrated at this time.

“The BSP will continue to keep a watchful eye on domestic and external conditions to ensure that the monetary policy stance stays in line with maintaining price and financial stability,” he said.

For his part, BSP Deputy Governor Diwa Guinigundo said monetary authorities slashed its inflation forecast to 1.8 percent instead of 2.1 percent this year and retained next year’s projection at 2.5 percent.

 “Food prices are down and other commodity prices are also down particularly oil. In fact the assumption of oil is a lot lower compared to what we assumed in the last meeting of the Monetary Board,” Guinigundo said.