BSP maintains monetary policy, inflation targets

MANILA, Philippines – The country’s central bank maintained its monetary policy anew and kept its inflation target for the year even if the United States decided to raise its interest rates.

Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr said on Thursday, December 22, that the central bank is keeping the overnight borrowing rate or reverse repurchase (RRP) at 3%.

“The corresponding interest rates on the overnight lending and deposit facilities were also kept steady. The reserve requirement ratios were likewise left unchanged,” said Tetangco.

The BSP’s decision is based on its assessment of inflation dynamics and the risks to the inflation outlook over the policy horizon.

Early this month, the US Federal Reserve raised the benchmark Fed funds rate by 25 basis points to a range of between 0.50% and 0.75%. The signal it sends to the rest of the world is that the US economy is doing much better, and valuations for both equity and bond markets are automatically reassessed. (READ: U.S. Fed raises key interest rate, sees 3 hikes in 2017)

“Latest baseline forecasts indicate that average inflation would likely settle below the target range of 3% plus, minus 1 percentage point for 2016,” the BSP said.

“With these considerations, the Monetary Board believes that prevailing monetary policy settings remain appropriate.”

Moving forward, the central bank said it will continue to monitor emerging price and output conditions to ensure price and financial stability conducive to sustained economic growth.

“However, inflation is seen to return gradually to a path consistent with the inflation target in 2017-2018 due to higher oil prices and strong domestic economic activity,” the BSP added.

Targets for the coming years

The central bank decided to keep the inflation target at 3% plus-minus 1 percentage point for 2017 and 2018, and approved the inflation target of 3.0% plus-minus 1 percentage point for 2019 and 2020.

“The overall balance of risks surrounding the inflation outlook also remains tilted to the upside, owing partly to the pending petitions for adjustments in electricity rates as well as the initial impact of the government’s broad fiscal reform program,” the BSP said.

“Increased uncertainty in global economic prospects, meanwhile, continues to pose a key downside risk to the inflation outlook. Nevertheless, inflation expectations remain broadly consistent with the inflation target over the policy horizon,” it added.

The BSP’s Monetary Board also stressed that domestic demand conditions are likely to stay firm, supported by solid private household spending, higher government expenditure, and adequate domestic liquidity. – Rappler.com