The Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas, kept the overnight borrowing rate unchanged at 4.75 percent in its last meeting for the year, after five successive hikes since May.
The interest rates on the overnight lending and deposit facilities were also retained.
“There is a quite deceleration in inflation pressures between the Nov. 15 and Dec. 13 meetings,” BSP assistant governor Francisco Dakila said in a news briefing following the board meeting.
“The board noted that the latest inflation forecasts show a lower path over the policy horizon, with inflation settling within the target band of 2 to 4 percent for 2019 to 2020,” Dakila said.
He said recent headline inflation readings indicated signs of receding price pressures as constraints on food supply continued to ease with the implementation of various non-monetary measures.
The board reduced the inflation forecast to 5.2 percent from 5.3 percent for 2018, 3.18 percent from 3.5 percent for 2019 and 3.04 percent from 3.3 percent for 2020.
Dakila said inflation expectations had steadied given the decline in international crude oil prices and the stabilization of the peso.
Dakila said the risks to the inflation outlook became more evenly balanced for 2019 and leaned toward the downside for 2020 amid a more uncertain global economic environment, which could further mitigate upward pressures from commodity prices in the coming months.
Dakila said despite the latest move of keeping the benchmark interest rates, the board remained vigilant against the latest developments and ready to take further action as appropriate to safeguard its price stability mandate.
The board raised by a total of 175 basis points its policy rate since May this year in a bid to rein in inflation.
ING Bank Manila senior economist Nicholas Mapa said the BSP might opt to cut interest rates by the second quarter next year if inflation continued to decelerate in the coming months.
Mapa said with 2018 inflation also driven largely by supply side pressures, headline inflation could follow a sharp decline similar to that of 2008.
He said food supply bottlenecks were being addressed by the government and oil prices were declining.
“Should headline inflation continue to slide in coming months, growth slow to sub-6 percent levels in coming quarters and the Fed adopts a more dovish stance, then the likelihood that the BSP reverses its stance to easing by the second quarter of 2019 will have increased,” Mapa said.
