BSP maintains interest rates in Tetangco’s final Monetary Board meeting

MANILA, Philippines – Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr stood pat at his last Monetary Board meeting, as inflation remains manageable and liquidity is still ample.

Just before Tetangco hands over the reins to his successor Nestor Espenilla Jr, the Monetary Board on Thursday, June 22, decided to maintain the interest rate on its overnight reverse repurchase (RRP) facility at 3%, overnight lending facility at 3.5%, and overnight deposit facility at 2.5%.

The outgoing BSP chief said the reserve requirement ratios were likewise left unchanged at 20%. (WATCH: Rappler Talk: Incoming BSP Governor Nestor Espenilla on his plans)

Tetangco, who is set to end his unprecedented two 6-year terms on July 2, said the decision is based on the Monetary Board’s assessment that the inflation environment continues to be manageable.

“Latest baseline forecasts indicate a lower path of future inflation, with average inflation remaining within the target range of 3% ±1 percentage point for 2017 to 2019,” Tetangco said in a media briefing in Pasay City.

While the Duterte administration’s proposed tax reform program could have a transitory impact on the policy rates, Tetangco said social safety nets are expected to mitigate the resulting inflationary pressures.

“The long-run effects on productivity will improve overall supply and further dampen inflation. Meanwhile, prospects for the global economy have improved, but risks to external demand remain tilted to the downside,” he explained.

Inflation eased to 3.1% in May from 3.4% in April, bringing the average to 3.1% in the first 5 months of the year, within the 2%-4% target set by the central bank.

While global economic conditions remain challenging, Tetangco said prospects for domestic economic activity continue to be firm, owing to buoyant consumer and business sentiment, ample liquidity, and sustained credit growth. (READ: Philippine stocks, peso down on another U.S. Fed hike) 

Lower inflation rate forecast

BSP Deputy Governor Diwa Guinigundo also announced that the Monetary Board has cut its inflation forecast for 2017 to 3.1% from 3.4%. The inflation target for 2018 and 2019 remains at 3%.

Guinigundo said the forecast for this year was lowered as outlook showed the future path of inflation is lower and expectations continue to be in line with the inflation target.

He also cited the robust economic growth despite the slowdown in the gross domestic product (GDP) growth to 6.4% in the 1st quarter from 6.6% in the 4th quarter.

Likewise, Guinigundo said the proposed comprehensive tax reform program would have an impact of less than 1% for the inflation rates in 2018 and 2019.

But he warned of the potential impact of the ongoing unrest in Marawi City on both economic growth and inflation.

“I’m sure there will be some impact on both growth and inflation. If there is unrest in the area, productivity can be affected. But due to the 60-day freeze on basic commodities, prices remain stable and supply is generally adequate. Effects so far are benign on inflation,” Guinigundo said.

Moving forward, the BSP said it will remain vigilant against risks to the inflation outlook and will adjust its policy settings as needed to ensure inflation remains consistent with the target. – Rappler.com