BSP keeps policy stance, cuts inflation forecast

MANILA, Philippines – Despite the widely-anticipated rate hike in the US, the Bangko Sentral ng Pilipinas (BSP) kept its policy stance unchanged for the 20th straight time, as inflation remained low and stable, domestic economic activity stood firm, and the government increased spending.

BSP Governor Amando Tetangco Jr said on Thursday, March 23, that the central bank is keeping the overnight borrowing rate or reverse repurchase (RRP) at 3%.

This was after the US Federal Reserve on Wednesday, March 15 (Thursday, March 16 in Manila), raised the benchmark interest rate a quarter point, the 2nd increase since US President Donald Trump’s election and only the 3rd in a decade. (READ: How a Fed rate hike impacts the Philippine economy)

“The corresponding interest rates on the overnight lending and deposit facilities were also kept steady. The reserve requirement ratios were likewise left unchanged,” the central bank governor said in a briefing in Manila.

The BSP said the Monetary Board’s decision is based on its assessment that the outlook for inflation remains manageable, consistent with favorable growth prospects.

“Based on what we’ve seen, inflation is low and stable, banks are sound and stable, and the government is able to spend more on infrastructure and capital outlays,” BSP Deputy Governor Diwa Guinigundo said during the briefing.

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.

“The Monetary Board also observed that the balance of risks surrounding the inflation outlook remains tilted toward the upside, given the transitory impact of the proposed tax reform program as well as possible adjustments in transportation fares and electricity rates,” Tetangco said.

“Meanwhile, lingering uncertainty over the prospects of the global economy, due in part to possible shifts in macroeconomic policies in advanced economies, continues to pose a key downside risk to the inflation outlook,” he added.

Lower inflation forecasts

Meanwhile, the BSP lowered its inflation outlook for 2017 and 2018 to 3.4% and 3%, respectively.

Correction: BSP’s inflation forecast for 2018 also reduced to 3% from 3.1% @rapplerdotcom

— Chrisee V. Dela Paz (@chriseedelapaz) March 23, 2017

Previous inflation forecasts were at 3.5% and 3.1% for 2017 and 2018, respectively.

“An increasing path of monthly inflation. Now, what was the reason for the increase in [the] first two months? This was due to the recent increase in food and oil prices. Also, base effects – something that is given,” Guinigundo said.

The BSP also said the Monetary Board observed risks that could affect its inflation forecasts: the transitory impact of the proposed tax reform program as well as possible adjustments in transportation fares and electricity rates.

“Meanwhile, lingering uncertainty over the prospects of the global economy, due in part to possible shifts in macroeconomic policies in advanced economies, continues to pose a key downside risk to the inflation outlook,” said the central bank. – Rappler.com