MANILA, Philippines – The Philippine central bank kept interest rates unchanged again, but said it would watch out for any risks to its projected inflation, or the movement of prices of basic goods and services.
Bangko Sentral ng Pilipinas Governor Nestor Espenilla Jr announced that the Monetary Board decided to leave the overnight reverse repurchase facility unchanged at 3% – the same for the corresponding interest rates on the overnight lending and deposit facilities.
The BSP said in a statement that its reserve requirement ratio was also left unchanged at 20%.
“The Monetary Board believes that prevailing monetary policy settings continue to be appropriate,” Espenilla said.
The board’s decision to retain benchmark rates was due to the manageable inflation environment.
A risk to movement of prices of basic goods and services is the proposed tax reform program, which could exert potential pressures on prices, said Espenilla.
“At the same time, while prospects for global economic growth have stayed broadly upbeat, geopolitical tensions and lingering uncertainty over macroeconomic policies in advanced economies continue to pose downside risks to external demand,” he added.
Offsetting the risk are the solid outlook for domestic economic activity and ample liquidity.
“Looking ahead, the BSP will continue to be vigilant against any risks to the inflation outlook and will adjust its policy settings as needed to ensure stable prices while supporting sustainable economic growth,” Espenilla said.
Meanwhile, the Monetary Board retained its inflation forecast for 2017 and 2018 at 3.2%. (WATCH: Rappler Talk: Incoming BSP Governor Nestor Espenilla on his plans)
BSP Deputy Governor Diwa Guinigundo said, however, that the board adjusted its 2019 inflation outlook to 3.2% instead of 3.1%.
Guinigundo said these projections were based on the depreciation of the Philippine peso, higher oil prices, high liquidity, as well as the P21 increase for minimum wage earners in Metro Manila starting October.
In the US, the central bank also decided to leave its rates unchanged, but majority of its officials penciled in one more rate hike before the year ends.
The US Federal Reserve will begin to reduce its approximately $4.2 trillion in holdings of US treasury bonds and mortgage-backed securities in October.
“If the balance sheet adjustment is the preferred mode by the US Fed, it is going to be very, very gradual. So I think the impact on us will also be not that significant,” Guinigundo said.
He, however, said it would be a different story once the Fed decides to hike interest rates again.
“If they raise interest rates, then you can expect some reflow of capital to the US and that will have some impact on us. There will be higher demand for foreign exchange, the peso will depreciate, and then we will have collateral impact on the balance of payments,” Guinigundo said.
The US central bank raised rates last March and June. – Rappler.com
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