Philippines maintains monetary policy; cuts inflation forecasts

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) kept monetary policy steady anew, but cut its inflation forecasts for 2016 and 2017 amid lower oil prices and weaker global economic growth.

BSP Governor Amando Tetangco Jr said on Thursday, August 11, that the central bank is keeping the overnight borrowing rate or reverse repurchase (RRP) at 3%, which was last lowered in June due to interest rate corridor (IRC) shift.

RRP is the interest rate on the repurchase facility (RP) transaction, typically contracted between the BSP and banks. RRPs may also have overnight or term maturities.

“The Monetary Board’s decision is based on its assessment that the inflation environment remains manageable,” Tetangco said in a media briefing in Pasay City.

The chief of the country’s central bank added that current monetary policy settings remain appropriate.

But Tetangco noted “increased uncertainty over prospects for growth and monetary policy action in major advanced economies requires prudence in policy settings.”

Inflation forecasts lowered

At the same time, inflation forecasts for this year and the next were trimmed to 1.8% from 2% and to 2.9% from 3.1%, respectively, BSP Deputy Governor Diwa Guinigundo said.

According to Guinigundo, the 3 main reasons for the reduction are lower oil prices, weaker global growth, and the inflation rates in the past two months.

“[O]il prices continue to see modest increases in the adjustment of crude oil in global markets. Oil prices continue to drive inflation,” he told reporters.

Slower global economic activity also remains the key downside risk to the inflation outlook. 

“Global economic growth continues to be soft – that’s the announcement of the US government: A disappointing second quarter output growth. The US and many other developed countries provide key markets for emerging countries like the Philippines,” Guinigundo explained.

But the BSP said domestic economic conditions continue to be firm, supported by solid private household consumption and investment, buoyant business and consumer sentiment, as well as adequate credit and domestic liquidity.

The lower inflation predictions, however, don’t take into account possible steps from the government in the near future that may lead to hikes in utility and petroleum prices.

“We expect some upside risks including possible adjustments in utility rates and possible imposition of taxes on petroleum products, These are something that would require some legislation,” Guinigundo said.

Meanwhile, the BSP retained its 2018 inflation outlook at 2.6%. – Rappler.com