The Monetary Board, the policy-making body of Bangko Sentral ng Pilipinas, kept the benchmark interest rates Thursday, a day after the US Federal Reserve also maintained its policy settings.
Bangko Sentral Governor Amando Tetangco Jr. said interest rates were kept at 3.5 percent for overnight lending, 3 percent for overnight borrowing and 2.5 percent for overnight deposits. The reserve requirement ratios of banks were also left unchanged.
The last time the board changed the policy rates was in September 2014.
Tetangco said the board’s decision was based on its assessment that the inflation environment remained manageable. Latest forecasts showed that average inflation was likely to settle slightly below the 2 percent to 4 percent target range in 2016 and rise toward the mid-point of the target range in 2017 and 2018.
“The Monetary Board observed that inflation is still being driven mainly by supply-side factors. Nevertheless, inflation expectations remain broadly in line with the inflation target over the policy horizon,” Tetangco said.
Inflation averaged 1.5 percent in the first eight months, below the government’s official target range of 2 percent to 4 percent.
The low inflation environment prompted the board to slightly reduce the inflation target average this year to 1.7 percent from the previous estimate of 1.8 percent.
Bangko Sentral Deputy Governor Diwa Guinigundo said that in reducing the inflation forecast this year, the board took into consideration the lower inflation turnout of 1.8 percent in August from the 1.9 percent in July; the tapering impact of election-related spending; and the rainy season that will cause a moderation in some economic activities.
“We also considered the expected delay in power rate adjustments,” Guinigundo said.
The board, however, kept the previous inflation average estimates of 2.9 percent and 2.6 percent for 2017 and 2018, respectively.
Meanwhile, Tetangco said the latest move of the US Federal Reserve would likely slow the weakness of the peso against the greenback.
The Fed decided to maintain interest rates unchanged but hinted that it could still raise the rates before the end of the year.
“The recent weakness in the peso has been due to a number of factors. In the last two weeks the European Central Bank, Bank of Japan and the Fed held policy meetings. It is normal price action that in the run up to these meetings, volatility heightens and markets become defensive and take profit on positions,” Tetangco said.
Tetangco said of particular interest relative to the peso was the Fed action.
“Last night it kept its target funds rate steady. With that uncertainty gone for now, we can expect a slowing of peso weakness….,” Tetangco said.