The Monetary Board, the policy-making body of Bangko Sentral ng Pilipinas, kept the benchmark interest rates steady on Thursday, amid a manageable inflation environment and robust economic growth.
Bangko Sentral Deputy Governor Nestor Espenilla Jr. said in a news briefing the interest rates were maintained at 3.5 percent for overnight lending, 3 percent for overnight borrowing and 2.5 percent for overnight deposits. The reserve requirement ratios were also left untouched.
“The Monetary Board’s decision is based on its assessment that the inflation environment continues to be manageable. Latest forecasts showed that average inflation is likely to settle near the lower edge of the 2 to 4 percent target range in 2016 and rise toward the mid-point of the target range in 2017 and 2018,” Espenilla said.
Espenilla said with global oil prices recovering, the risk of second-round effects from lower oil prices would likely recede in the period ahead.
“Nevertheless, slower global economic activity remains a key downside risk to the inflation outlook. Given improved rainfall conditions and the shift to neutral weather conditions in the May to July period, the upside risks to food and utility prices due to El Nino are also seen to recede in the coming months,” Espenilla said.
He said domestic economic activity remained firm, backed by solid private household consumption and investment, buoyant business and consumer sentiment and sufficient credit and domestic liquidity.
The board’s move Thursday was the first time it maintained the adjusted interest rates under the interest rate corridor which started June 3.
The Monetary Board reduced the inflation forecast this year to 2 percent from an earlier estimate of 2.1 percent, but kept the forecast of 3.1 percent for 2017. The inflation forecast for 2018 was 2.6 percent.
Bangko Sentral Deputy Governor Diwa Guinigundo said the slight adjustment in the 2016 inflation forecast stemmed from the lower minimum wage adjustment of P10 in June compared to the planned P27 for July 2016.
Inflation in the first five months averaged 1.2 percent, below the target range of 2 percent to 4 percent. The gross domestic product grew 6.9 percent in the first quarter, faster than 5 percent a year ago. Experts expect GDP growth to accelerate further in the second quarter.
Guinigundo downplayed any huge impact on the domestic market of the possible exit of Great Britain from the European Union, saying the Philippines’ solid macroeconomic fundamentals would make foreign investors think twice before leaving the country.
“We see the impact on domestic foreign exchange market not to be significant,” Guinigundo said.
“We also continue to have sufficient balance of payments surplus,” he said.