BSP keeps rates on hold as inflation cools down
( - February 7, 2019 - 4:39pm

MANILA, Philippines (Update 2, 5:55 p.m.) — The Bangko Sentral ng Pilipinas on Thursday kept its policy rate unchanged, citing easing price pressures.

At its first meeting for 2019, the policymaking Monetary Board left the key rate untouched at 4.75 percent.

“The Monetary Board's decision is based on its assessment of a more manageable inflation environment,” the central bank said.

“Price pressures continue to recede due to the decline in int’l crude oil prices and the normalization of supply conditions for key food items,” it added.

“Meanwhile, the risks to the inflation outlook are seen to remain evenly balanced for 2019 while leaning toward the downside for 2020 given a more uncertain global economic environment, which in turn could temper potential upward pressures from commodity prices in the coming months.”

Inflation stood at 4.4 percent in January, the slowest rate since April 2018 but still above the government’s 2-4 percent target range.

At their Thursday meeting, monetary authorities adjusted their inflation forecasts, with consumer-price growth now seen averaging 3.07 percent in 2019 from earlier projection of 3.18 percent and 2.98 percent next year from 3.04 percent previously.

The BSP also said it continues to expect inflation to settle below 4 percent by March of this year, but stressed the need to pay attention to the year-to-date figure.

“Given these considerations, the Monetary Board deems the prevailing monetary policy settings to be appropriate, as previous monetary responses continue to work their way through the economy,” the central bank said.

“The Monetary Board also emphasized that the BSP remains vigilant against developments that could affect the outlook for inflation and is prepared to take appropriate policy action as necessary to safeguard its price and financial stability objectives,” it added.

Higher excise taxes on certain commodities, food supply bottlenecks and rising fuel prices pushed up inflation last year, and it spiked to a near-decade high in September and October before it started to cool down.

In a bid to fight capital outflow and keep inflation in check, the BSP lifted its policy rate by a cumulative 175 basis points last year before slamming on the brakes in December.

Commenting on the BSP’s decision, London-based Capital Economics said “interest rate cuts are now looking increasingly likely.”

“We are expecting the first cut at the BSP’s May meeting,” Capital Economics said.

“Another reason we expect the central bank to cut interest rates is the worsening outlook for the economy. Recent figures show [gross domestic product] growth in Q4 undershot expectations,” it added.

Separately, ING Bank in Manila said another cut in bank reserves “may be on the way.” Deputy Governor Diwa Guinigundo told a press conference that the possible reduction in the reserve requirement ratio (RRR) imposed on big banks was not the subject of Thursday’s Monetary Board meeting.

ING Bank also said the BSP may finally opt to give the economy an added boost to regain “flagging” growth momentum. 

“The central bank will likely slash reserve requirement ratios (RRR) as early as February with inflation decelerating while domestic liquidity conditions remain relatively tight,” ING Bank said.

“We expect the BSP to announce a reduction in reserve requirements at an off-cycle meeting given the governor’s assertions that the RRR is no longer a policy tool,” it added.

“Meanwhile, the Bureau of the Treasury also indicated on Thursday that it was preparing to issue a retail treasury bond (RTB) in the near term, with an RRR cut from the BSP one of the deciding factors for the timing of issuance.” — Ian Nicolas Cigaral

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