MANILA, June 22 — The Bangko Sentral ng Pilipinas (BSP) on Thursday kept key rates steady as widely expected on projections that inflation will remain manageable.
Thus, the overnight borrowing or reverse repurchase (RRP) rate is still at three percent, the overnight lending or repurchase (RP) rate is at 3.5 percent, and the rate of the special deposit account (SDA) facility is at 2.5 percent.
The 20 percent reserve requirement for universal and commercial banks (U/KBs) was also maintained.
“The Monetary Board’s decision is based on its assessment that the inflation environment continues to be manageable,” BSP Governor Amando M. Tetangco Jr. said during his last monetary policy briefing.
Tetangco, who will step down from this two six-year terms on July 2, said the Board now sees lower path for inflation and that inflation expectations “continue to be firmly anchored.”
He said risks on the inflation outlook were still tilted on the upside given the possible transitory effect of the proposed tax reform program but pointed out that “social safety nets are expected to mitigate the resulting inflationary pressures.”
“The long-run effects on productivity will improve overall supply and further dampen inflation,” he said.
The central bank chief also noted the improving prospects for the global economy but cited that “risks to external demand remain tilted to the downside.”
“Nonetheless, the Monetary Board emphasized that while global economic conditions remain challenging, prospects for domestic economic activity continue to be firm owing to bouyant consumer and business sentiment, ample liquidity, and sustained credit growth,” he said.
In terms of the impact of the US interest rate normalization on global financial market, Tetangco said the Board took this in consideration and noted that “maintaining policy settings at this time would allow the BSP to continue to assess evolving economic developments and calibrate its policy tools as appropriate.”
“Going forward, the BSP will remain vigilant against any risks to the inflation outlook and will adjust its policy settings as needed to ensure that future inflation remains consistent with the medium-term target while being supportive of sustainable economic growth,” he added.
During the same briefing, BSP Deputy Governor Diwa Guinigundo said the Board cut the central bank’s average inflation forecast for 2017 to 3.1 percent from 3.4 percent during the MB’s meeting last May 11.
The 2018 forecast was maintained at three percent while the Board has set the 2019 average inflation projection also at three percent.
Guinigundo said among the factors for the cut in this year average inflation forecast was the expected lower path of inflation, inflation expectations that remain inline with the target, robust domestic economic growth, liquidity and credit conditions that remained supportive of growth, and improving global economic prospects.
Asked on the impact on inflation of the proposed tax reform, the central bank official said it was hard to pin a specific figure since the Senate had yet to decide on it.
He, however, said that in general the proposed reform was projected to increase inflation rate by less than one percentage point and would not make the actual level beyond the government’s two to four percent target.
On the possible impact on growth and inflation of the on-going hostilities in Mindanao, Guinigundo said “there will be some impact” because the situation will have effects on productive activities.
“But with the declaration of Martial Law in Mindanao what is also involved in that declaration is a freeze on basic commodities for 60 days,” he said, which he said will “contribute to the stability of the overall inflation rate for the Philippines.”
Meanwhile, the Board also lowered its price assumption for Dubai crude for this and next year and has set the assumption for 2019.
During the Board’s meeting last May 11, its 2017 oil price assumption was 51.32 while it was 51.03 for 2018.
On Thursday, the assumption for this year was lowered to 49.49 and to 48.17 for next year. The 2019 assumption is 49.54. (PNA)