The Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas, on Thursday kept the benchmark interest rates steady amid the slowdown in the inflation rate.
Presiding for the first time as its chairman, Bangko Sentral Governor Benjamin Diokno said in a briefing after the meeting that the board maintained the policy rate at 4.75 percent. The interest rates on the overnight lending and deposit facilities were also held steady.
“The board’s decision is based on its assessment that prevailing monetary policy settings remain appropriate,” Diokno said, adding the baseline inflation forecasts showed inflation settling within the target range of 2 percent to 4 percent for 2019 and 2020.
He said inflation pressures eased further since the previous monetary policy meeting, reflecting mainly the decline in food prices amid the improved supply conditions.
The board reduced the inflation target this year to 3 percent from the estimate of 3.1 percent made in the Feb. 7 meeting. The forecast for 2020 was kept at 3 percent.
BSP Deputy Governor Diwa Guinigundo said among the factors considered for the downward revision in inflation forecasts were the latest inflation outturn in February at 3.8 percent―a one-year low―and the expected decline in Dubai crude oil.
“We expect the downward trajectory of inflation to continue in 2019 and 2020 and stabilize around 3 percent,” Guinigundo said.
The expected resumption of the reduction in reserve requirement did not happen Thursday―as what most analysts predicted prior to the meeting―but Guinigundo said this was discussed during the meeting.
“It remains on the table but the issue in terms of RRR cut is the timing. This was discussed by the board but agreed that we will do it at the right timing,” Guinigundo said.
The reserve requirement or cash reserve ratio is a central bank regulation that sets the minimum amount of reserves that should be held by a commercial bank.
ING Bank Manila senior economist Nicholas Mapa said although the RRR was left out again in Diokno’s statement, “ a reduction in RRR may be cooking.”
Diokno said the board observed that overall prospects for domestic activity continued to be firm, backed by a projected recovery in household spending and the continued implementation of the government’s infrastructure program.
“However, there are risks to economic growth in 2019 if the current budget impasse in Congress is not resolved soon,” Diokno said.
The inter-agency Development Budget Coordination Committee last week reduced its 2019 growth forecast to a range of 6 percent to 7 percent from the previous target of 7 to 8 percent.
Growth target in 2020 was also predicted at 6.5 percent to 7.5 percent while the target for 2021 to 2022 was set at 7 percent to 8 percent.
The National Economic and Development Authority earlier said a reenacted budget for the entire year could pull down economic growth to as low as 4.2 percent this year, the slowest since 3.7 percent in 2011.
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