The Bangko Sentral ng Pilipinas (BSP) found no compelling reason to make appropriate adjustments to the monetary-policy structure and kept the policy rates unchanged on Thursday at the sixth rate-setting meeting of the Monetary Board this year.
In that meeting, the seven-man Monetary Board decided against tweaks to the relevant rates but more particularly the rate at which it borrows from the banks, or the reverse repurchase rate (RRP), at 3 percent.
The corresponding interest rates on the overnight lending and deposit facilities were also kept steady. The reserve requirement ratios were, likewise, left unchanged.
Central Bank Governor Nestor A. Espenilla Jr. said the BSP took a long look at the policy horizon and concluded the inflation environment, particular price pressures notwithstanding, continues to be manageable.
Immediately, however, Espenilla said inflation risks are skewed to the upside, especially when one takes into consideration the full on impact of the proposed tax-reform program.
“The balance of risks to the inflation outlook also continues to be on the upside. While the proposed tax-reform program may exert potential transitory pressures on prices, various social safety nets and the resulting improvement in output, and productivity are also expected to temper the impact on inflation over the medium term,” Espenilla said in a statement.
“Latest forecasts show the future inflation path will continue to be within the target range for 2017 to 2019. Meanwhile, inflation expectations remain firmly anchored close to the midpoint of the government’s [2 percent to 4 percent] percentage point target over the policy horizon,” he added.
Against this backdrop, the BSP similarly kept the forecast inflation at 3.2 percent this year up to 2018, or well within the 2-percent to 4-percent official target.
Inflation started to creep up in August when it averaged 3.1 percent, from only 2.8 percent a month earlier. This development brought headline inflation in the first eight months to 3.1 percent.
The BSP also said that, while prospects for global economic growth have stayed broadly upbeat, geopolitical tensions and lingering uncertainty over macroeconomic policies in advanced economies continue to pose downside risks to external demand.
“The outlook for domestic economic activity remains firm, supported by positive consumer and business sentiment and ample liquidity. Moreover, as credit for production activities continues to expand in line with output growth, the economy’s absorptive capacity is, likewise, seen to improve, thus mitigating inflation pressures over the long run,” Espenilla said in his statement, adding that the BSP will still remain watchful over evolving economic growth and liquidity conditions and their implications for price and financial stability.
“Based on these considerations, the Monetary Board believes that prevailing monetary-policy settings continue to be appropriate. Looking ahead, the BSP will continue to be vigilant against any risks to the inflation outlook and will adjust its policy settings as needed to ensure stable prices while supporting sustainable economic growth,” Espenilla added.
The BSP will next meet on November 9. It will be the seventh rate-setting meeting of the year.
Earlier, economists anticipated one more policy rate adjustment before the year ends.
“We remain of the view that the central bank is slightly behind the curve in policy tightening…. We reckon there is a good chance for a 25-basis-point rate hike each in both the fourth quarter of 2017 and first quarter of 2018,” Singapore-based DBS Bank economist Gundy Cahyadi said.