Monetary policy rates unchanged

Chris Schnabel

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Monetary policy rates unchanged
Inflation forecasts are also slightly raised due to El Niño impact, expectation of a weaker peso, and oil prices trending upwards

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) announced that it is keeping key policy rates unchanged following the monetary board meeting on Thursday, May 14.

Overnight borrowing or Reverse Repurchase Facility (RRP) is retained at 4% and overnight lending or Repurchase Facility (RP) is unchanged at 6%.

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

The special deposit accounts (SDAs) or fixed-term deposits by banks and trust entities of BSP-supervised financial institutions were also kept steady.

The interest rates for RRP, RPs, and SDAs also remain unchanged.

In June 2014, BSP raised the interest rate on the SDA facility by 25 basis points to 2.25% from 2% across all tenors effective immediately.

The reserve requirement ratios, or the central bank regulation that sets the minimum fraction of customer deposits and notes that each commercial bank must hold as reserves, were left unchanged as well.

The monetary board’s decision was based on the assessment that the current monetary policy remains appropriate given the manageable inflation environment.

The BSP’s latest inflation forecasts show that inflation is likely to fall within the lower half of the target 3%, ± 1 percentage point for 2015 and 2016.

The monetary board said that risks to the inflation outlook are broadly balanced, with upside risks coming chiefly from pending petitions for adjustment to electricity rates and possible power shortages, while downside risks remain for global growth.

The monetary board also noted that domestic demand remains robust due to strong private demand and a buoyant business sentiment.

Inflation forecasts slightly increased

The monetary board also slightly raised inflation forecasts, BSP Deputy Governor for the Monetary Stability Sector Diwa C. Guinigundo said.

For 2015, the forecast is now 2.3% from a previous 2.2% while inflation for 2016 is eyed at 2.6% from the previous 2.5%.

This is despite actual inflation for March and April of this year being lower than forecasted.

He cited that the expectation of a weaker peso, oil prices trending upwards, and the impact of El Niño as important factors behind the higher inflation forecasts.

“El Niño in particular, is expected to extend from June to December of 2015. You can just imagine the impact on agriculture, and therefore on food and power supplies,” Guinigundo said.

The monetary board remains vigilant to possible external developments, especially changes to the monetary policy of the United States, he added.

“Adjustments to US monetary policy are expected in the 2nd semester of this year and the monetary board is fully cognizant of the possible impact of this,” he confirmed.

The monetary board also noted that the policy rate of the Philippines is positive in “real terms” so there is enough policy space to adjust.

Additionally, the factors that contribute to inflation falling within target are also additional buffers, in case the Philippine economy experiences some adverse impact from the expected monetary tightening in the US, Guinigundo said. –

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