BSP keeps rates steady, lowers inflation forecast

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) kept its policy rates unchanged yesterday amid the country’s economic growth momentum and benign inflation environment.

BSP Governor Amando Tetangco Jr. said the central bank’s Monetary Board decided yesterday to maintain the overnight borrowing rate at four percent and the overnight lending rate at six percent.

Tetangco said interest rates on term reverse repurchase facility, repurchase facility and special deposit accounts were also left unchanged, as well as the reserve requirement ratios for banks.

“The Monetary Board also observed that domestic demand conditions have stayed firm, as business and consumer sentiment continue to be buoyant and domestic liquidity remains adequate,” he said.

He said the BSP’s Monetary Board noted the challenging external environment and uneven growth prospects in advanced and key emerging economies supported a steady policy setting.

“Given these conditions, the Monetary Board believes that the benign inflation environment and the economy’s underlying growth momentum provide adequate room to maintain monetary policy settings,” Tetangco said.

This marked the ninth straight policy-setting meeting since October last year the Monetary Board has kept interest rates unchanged.

The BSP raised last year interest rates by 50 basis points, bringing the overnight borrowing rate to four percent and the overnight lending rate to six percent, as well as the reserve requirements for banks to siphon off excess liquidity in the financial system. It also hiked the reserve requirement ratio of banks to 20 percent.

Last year, the BSP hiked policy rates by 25 basis points in July and by another 25 basis points in September. It also raised the reserve requirements for banks by one percentage point in March and by another one percentage point in May.

Tetangco said the decision to keep interest rates steady was based on its assessment of inflation dynamics and the risks to inflation outlook over the policy horizon.

The BSP chief said the policy-setting body also considered the risks to the inflation outlook to be broadly balanced as the potential upside pressure could come from the impact of the prolonged and severe El Niño weather conditions on food prices and utility rates while downside risks could arise from possible slower-than-expected global economic activity.

For his part, BSP Deputy Governor Diwa Guinigundo said inflation forecast has been lowered further to 1.4 percent instead of the previous projection of 1.6 percent because of the continuing softening of oil prices as well as other food prices.

Likewise, Guinigundo added inflation forecast for 2016 was reduced to 2.3 percent instead of 2.6 percent and for to 2.9 percent for 2017 instead of three percent.

He explained the projections were lowered because of the continued decline in oil and other commodity prices as well as an economic growth fueled by continued consumer spending.

The BSP chief said the 4-5 percent growth in remittances from overseas Filipinos this year as well as the robust business process outsourcing sector that continue to employ more workers would help sustain a strong consumer spending.

He cited the record low inflation that was maintained at 0.4 percent in October due to stable food prices and lower utility rates.

The BSP has set an inflation target of between two percent and four percent for this year and next.

Guinigundo said the 7-8 percent gross domestic product (GDP) growth target set by economic managers this year could be doable for next year and in 2017.

“The seven percent to eight percent growth is something that is doable for 2016 and 2017,” he said.

Economic managers have given up on the target as the country’s GDP growth slowed to 5.3 percent in the first half of the year from 6.4 percent a year earlier due to weak global demand and lack of government spending.