The central bank will keep interest rates on hold for several more months as officials remain confident domestic demand will remain strong and price increases muted.
Cheap fuel and the stable supply of food—thanks to rice imports earlier this year—pushed inflation to a new record low last month, data from the central bank said.
Price increases are expected to pick up in 2016, but still average well within the Bangko Sentral ng Pilipinas (BSP) target range.
“There’s little pressure to tweak policy settings, really,” Standard Chartered economist Jeff Ng said in a comment on Tursday.
Government data released yesterday showed inflation in September slowed to a record low of 0.4 percent, slower than August’s 0.6 percent. Banks polled by the Inquirer last week gave a median forecast of 0.6 percent.
The BSP adjusts monetary policy levers such as interest rates and so-called macroprudential tools to keep prices stable and protect consumers’ purchasing power. The BSP wants to keep inflation within its target range of 2 to 4 percent, although official forecasts show the average settling at 1.6 percent for 2015.
BSP Deputy Governor Diwa C. Guinigundo said in an e-mail to reporters that current settings remained appropriate, despite the prospect of below-target inflation.
The last time policy settings were adjusted was in September 2014, when the BSP raised its overnight borrowing and lending rates by a quarter of a percentage point each to 4 and 6 percent, respectively.
“The BSP’s policy-rate settings are expected to remain on hold in view of the still buoyant domestic demand conditions in the face of soft price pressures,” JP Morgan Southeast Asia economist Sin Ben Ong said.
Guinigundo said last year’s moves were aimed at ensuring stability in financial markets amid expectations of a rate increase by the US Federal Reserve, the American central bank. Additional risks to financial stability have emerged recently in the form of China’s slowing economy and currency value fluctuations.
“Any development in the US Fed and China should be addressed by our preemptive moves last year, which gave us the monetary space today,” he said.
BPI economist Emilio Neri Jr. said weak economic data out of the US might lead to a further delay in the US Fed’s rate increase to early 2016. In the coming months, he said the BSP would be on guard against a potential pickup in inflation due to El Niño.
Drier weather as a result of El Niño, which the state weather bureau said would last till June 2016, is expected to drive up the price of food as farmlands are starved of water. Power rates may also rise as hydroelectric plants struggle with reduced rainfall.
“Inflation is gradually seen to return to within target with possible upward pressure caused by El Niño in the next six months,” Neri said.