The Monetary Board, the policy-making body of Bangko Sentral ng Pilipinas, on Thursday kept the benchmark borrowing and lending rates unchanged for the ninth time since October last year, amid a low-inflation environment.
Bangko Sentral Governor Amando Tetangco Jr. said key policy rates were kept at 4 percent for overnight borrowing and 6 percent for overnight lending. The special deposit accounts and reserve requirement ratios were also left untouched
“The Monetary Board’s decision is based on its assessment of inflation dynamics and the risks to the inflation outlook over the policy horizon. Latest baseline forecasts continue to indicate that inflation could settle below the target range of 2 to 4 percent for 2015,” Tetangco said.
“However, notwithstanding the recent low inflation readings, inflation is projected to return steadily to a path consistent with the inflation target for 2016 to 2017, given the foreseen adverse weather conditions and the pending petitions for utility rate increases,” Tetangco said.
While China and Singapore have eased monetary policy in recent weeks to boost flagging growth, many emerging nations in Southeast Asia are holding fire to support currencies that are vulnerable to capital outflows should US rates rise. Federal Reserve Chair Janet Yellen and her colleagues have signaled that a rate increase at their December meeting was on the table, and the peso slumped to a six-year low this week.
“The concern is: what sort of volatility will the Fed action create?” Gundy Cahyadi, an economist at DBS Group Holdings Ltd. in Singapore, said before the BSP decision. “Central banks will play a cautious approach and in the Philippines, there is no urgent need to move interest rates for now. While there isn’t a huge risk of capital outflows, the peso is playing catch up with the weakness of regional currencies.”
Tetangco said inflation expectations remained anchored within the inflation target band. The Monetary Board also considered the risks to the inflation outlook to be broadly balanced.
Tetangco said potential upside pressures could come from the impact of protracted El Niño dry weather conditions on food prices and utility rates. Downside risks could arise from possible slower-than-expected global economic activity.
“The Monetary Board also observed that domestic demand conditions have stayed firm, as business and consumer sentiment continue to be buoyant and domestic liquidity remains adequate. In addition, the Monetary Board noted that the challenging external environment and uneven growth prospects in advanced and key emerging economies supported a steady policy setting,” Tetangco said.
He said given these considerations, the Monetary Board believed that the benign inflation environment and the economy’s underlying growth momentum provided adequate room to maintain monetary policy settings.
Bangko Sentral reduced the inflation forecasts for 2015, 2016 and 2017. Deputy Governor Diwa Guinigundo said the inflation forecast for 2015 was cut to 1.4 percent from 1.6 percent; for 2016 to 2.3 percent from 2.6 percent; and, for 2017 to 2.9 percent from 3 percent.
“The downward revision took into consideration the declining oil and commodity prices, particularly the 0.4 percent inflation rate both in September and October,” Guinigundo said during the briefing.
Inflation rate in October settle at 0.4 percent, slower than 4.3 percent recorded in the same month last year. This brought average inflation in the first 10 months to 1.5 percent, below the government’s official target of 2 percent to 4 percent for 2015.
“The impact of September and October [inflation] could be dominant in the succeeding forecasts for inflation particularly for 2016 and 2017,” Guinigundo said. With Bloomberg