Clearly within-target inflation seen persisting throughout the year allowed the Bangko Sentral ng Pilipinas (BSP) on Thursday to keep the rate at which it borrows from or lends to bank frozen where they have been the past 13 rate-setting meetings of the Monetary Board.
At the postmeeting briefing BSP Governor Amando M. Tetangco Jr. hosted, he said inflation expectations this year have “declined slightly due to low inflation readings in recent months.”
Tetangco also said forecast inflation were to remain firmly within the target band over the 18- to 24-month
policy horizon.
According to Diwa C. Guinigundo, deputy governor for the Monetary Stability Sector, forecast inflation remain unchanged at 2.1 percent for 2016 and at 3.1 percent for 2017.
At the same time, the central bank said the overall balance of risks surrounding the inflation outlook remains tilted to the downside, with potential downward price pressures associated with slower-than-expected global economic activity and possible second-round effects from lower international oil prices.
This helped extend to the central bank sufficient space to keep its policy rates, where they have been for the 13th consecutive time, or since October 2014.
In particular, the Monetary Board decided to maintain the BSP’s overnight borrowing, or reverse repurchase rate, at 4 percent and at 6 percent for overnight lending, or repurchase rate.
The banks’ reserve requirement ratio and special deposit account rates were also kept frozen.
Guinigundo said it “makes sense” to be prudent at this point, as monetary policy continues to be divergent in other jurisdictions.
“We remain flexible on account of possible or potential spillovers from divergent monetary policy,” he said of the curious state of things in the community of nations under the European Union that continues to require monetary-policy easing even as the US, still the world’s largest, should soon require the exact opposite policy therapy.
Guinigundo also said inflation expectations in the $285-billion economy remain anchored and the pressures driving inflation higher continues to come from the supply side and, therefore, monetary -policy action has very limited impact.
The BSP likewise said there remain upside risks to the inflation outlook coming from the El Nino dry weather impact on food prices, the utility rates as well as pending petitions for power rate adjustments.
“Given these consideration, the BSP will continue to monitor emerging price and output conditions to ensure the consistency of the monetary policy stance with stable prices and sustainable economic growth,” the BSP said.
