The Monetary Board, the policy-making body of Bangko Sentral ng Pilipinas, kept the borrowing rates steady Thursday, but raised the inflation forecast for the year.
Bangko Sentral Governor Nestor Espenilla Jr., who also chairs the board, said in a statement the key policy rates were retained at 3 percent for overnight borrowing and 5 percent for overnight lending.
The corresponding interest rate on deposit facilities was also kept unchanged.
“The Monetary Board’s decision is based on its assessment that while recent inflation out-turns show an elevated path in 2018, the latest baseline forecasts continue to show inflation remaining within the inflation target in 2018 and moderating further in 2019,” Espenilla said.
He said the Monetary Board considered that prospects for domestic activity continued to be firm on the back of robust domestic demand, strong growth in credit and liquidity and a sustained recovery in global economic growth.
“At the same time, the Monetary Board observed that the risks to the inflation outlook remain weighted toward the upside owing mainly to price pressures emanating from pending petitions for adjustments in minimum wages and transportation fares,” Espenilla said.
Espenilla said the non-monetary measures such as institutional arrangements in setting transportation fares and minimum wages, unconditional cash transfers and transport subsidies were expected to help mitigate the inflationary impulses.
He said the proposed reforms in the rice industry could also help temper price pressures.
Espenilla said that inflation expectations started to rise and therefore needed to be monitored closely in the coming months.
The Monetary Board raised the inflation forecast to 3.9 percent this year from the 3.8-percent estimated made in February.
The board, on the other hand, cut the inflation forecast next year to 3 percent from 3.1 percent.
“It was also observed that economic growth remains solid enough to absorb some policy tightening if warranted,” Espenilla said.
“Given these considerations, the Monetary Board reiterates that it remains watchful against any signs of second-round effects and inflation becoming broader based,” Espenilla said.
He said the Monetary Board was firm on its intent to take immediate and appropriate measures to ensure that the monetary policy stance continued to support BSP’s price and financial stability objectives.