BSP maintains policy rates, inflation forecast

MANILA, Phiippines – Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr is not in a rush to tighten policy as inflation is seen to remain manageable. During his penultimate meeting, the outgoing chief maintained policy rates and inflation forecasts.

With one more meeting left before he retires on July 2, Tetangco maintained policy rates at 3.5% for the overnight lending facility, 3% for the overnight reverse repurchase facility, and 2.5% for the overnight deposit facility.

He added that the BSP also left the reserve requirement ratios unchanged at 20%.

Tetangco said the decision was based on the Monetary Board's assessment that inflation would remain manageable and fall within the 2%-4% percent target.

"Market expectations likewise remain anchored to the inflation target over the policy horizon. At the same time, the Monetary Board observed that inflation has remained elevated due largely to recent increases in food prices and underlying pressures," he said in a press conference at the BSP headquarters on Thursday, May 11.

The outgoing BSP chief said monetary officials have considered the transitory impact of the proposed tax reform program, possible further adjustments in transportation fares and electricity rates, as well as the global economy.

"The Monetary Board emphasized that even amid external headwinds, the outlook for domestic economic activity remains intact owing to buoyant household consumption and private investment, increased government spending, ample liquidity, and sustained credit growth," he said.

Inflation forecast stays

Francis Dakila Jr, managing director for Monetary Policy Sub-Sector at the BSP, said they also maintained the inflation forecast at 3.4% for 2017 and at 3% for 2018.

Inflation was steady at 3.4% in April, bringing the average to 3.2% in the first 4 months of the year.

Dakila said the increase was offset by the decline in oil prices in the world market. "The two factors just balanced each other."

"The BSP projects lower oil prices at $51.2 instead of $51.94 per barrel this year as well as $51.3 instead of $51.55 per barrel next year," he added.

The central bank has kept a dovish stance for more than two years amid the sustained economic recovery as well as the benign inflation environment. It last raised interest rates by 25 basis points in September 2014.

Last June, the BSP made an operational adjustment, slashing key policy rates as part of the shift to the interest rate corridor (IRC) system. (READ: FAST FACTS: What does the Bangko Sentral ng Pilipinas do?)

Tetangco, 64, is set to preside over his last rate-setting meeting as head of the BSP and chair of the Monetary Board on June 22. He is retiring after 43 years at the central bank, with 12 years as governor – the only BSP chief to serve for two 6-year terms. (READ: EXPLAINER: Why is the role of BSP governor important?)

Tetangco will be replaced by BSP Deputy Governor Nestor Espenilla Jr, 58, who vowed continuity in the policies and reforms undertaken by the BSP over the past several years. (READ: Philippine bankers cheer Espenilla's appointment– Chrisee Dela Paz / Rappler.com