Bangko Sentral keeps interest rates unchanged
The interest rate on the overnight reverse repurchase facility remains at 4.75%, while interest rates on overnight lending facilities and deposit facilities are still at 5.25% and 4.25%, respectively.
In a statement on Thursday, March 21, the BSP said it assessed that the current monetary policy settings "remain appropriate."
The decision comes as inflation continues to ease, finally falling within target in February, mainly due to lower food prices.
"Latest baseline inflation forecasts show inflation settling within the target range of 3% ± 1.0 percentage point for both 2019 and 2020, while inflation expectations continue to stabilize within the target band," said the central bank.
Domestic activity is also expected to be stable, "supported by a projected recovery in household spending and the continued implementation of the government's infrastructure program."
The BSP warned, however, that economic growth may be at risk if the budget impasse remains unsolved. This is aside from the looming El Niño and "higher-than-expected" world prices for oil and food which could impact inflation.
As for 2020, fewer risks are seen as "tighter global financial conditions and geopolitical risks temper global economic activity and potential upward pressures on commodity prices."
"Given these considerations, the Monetary Board is of the view that the within-target inflation outlook and firm domestic growth support keeping monetary policy settings steady at this time," said the BSP.
In the near term, however, there may be a cut in the reserve requirement ratio (RRR), according to ING Bank Manila senior economist Nicholas Mapa.
The RRR is the minimum amount of reserves that banks must hold on to rather than lend or invest. Cutting the RRR adds liquidity to the financial system.
"[BSP] Deputy Governor Diwa Guinigundo continued to maintain that the RRR and adjustments to it must move in line with the bank's monetary policy stance. But with domestic liquidity growth in the single digits and time deposit rates elevated, we foresee a reduction in this rate to 17% from 18% at an off cycle policy meeting in the next few weeks," Mapa said. – Rappler.com