Monetary Board keeps key rates unchanged

MONETARY authorities have kept interest rates on hold, as expected, with officials confident that current settings would be enough to give the economy enough room to grow.

Overnight borrowing and lending rates are still at 4 and 6 percent, respectively.

Both are just half a percentage point above record lows.

Rates were left unchanged as consumer prices are expected to remain stable until 2017.

The Bangko Sentral ng Pilipinas said, however, that there was a risk of a prolonged period of dry weather caused by the El Niño weather phenomenon, which would have implications on inflation.

“Authorities have begun to initiate measures to mitigate the impact of El Niño, particularly on the agriculture sector,” BSP Deputy Governor Diwa C. Guinigundo said.

The BSP’s main goal is to protect consumers’ purchasing power by keeping prices stable.

Inflation is expected to fall below target for 2015 before gradually accelerating until 2017.

For 2015 and 2016, the BSP expects inflation to average at 1.6 percent and 2.6 percent, respectively.

For 2017, inflation is expected to average at 3 percent.

BSP Deputy Governor Diwa C. Guinigundo reiterated previous statements that below-target inflation was not a concern for the central bank.

Inflation in August averaged at 0.6 percent, a record low.

The BSP wants to keep inflation within a target range of 2 to 4 percent this year.

Apart from the effects of weather, the BSP said it was also wary of risks from the financial sector, given the uncertainty over the timing of the US Federal Reserve’s rate hike.

“Because of volatilities in global financial markets, we’ve seen how currencies have depreciated. It could have inflationary implications,” Guinigundo said.

Domestically, the BSP said the economy’s performance was on firm footing, noting the availability of ample liquidity to meet the requirements of businesses and the government. “We expect support from higher government spending,” he said.

In the second quarter of the year, the economy grew by 5.6 percent, accelerating from 5 percent in the January to March period. Socioeconomic Planning Secretary Arsenio Balisacan said the economic growth would settle between 6 and 6.5 percent this year. Paolo G. Montecillo