BSP keeps key policy rates steady

THE BANGKO Sentral ng Pilipinas’ (BSP) Monetary Board kept key policy rates unchanged during Thursday’s meeting, but raised inflation forecasts for the next two years amid emerging risks to prices.

“The Monetary Board decided to maintain the BSP’s key policy rates at 4 percent for the overnight borrowing or reverse repurchase (RRP) facility and 6 percent for the overnight lending or repurchase (RP) facility. The interest rates on term RRPs, RPs and special deposit accounts (SDA) were also kept steady. The reserve requirement ratios were likewise left unchanged,” BSP Governor Amando M. Tetangco Jr. told a press conference after their meeting.

As far as the effect of the US Fed rate increase on Thursday (Manila time) was concerned, Tetangco said the Monetary Board “has considered the potential impact of the recent monetary policy adjustment in the US on global financial conditions.”

“Keeping monetary policy settings steady at this juncture would allow the BSP some room to continue to assess evolving global economic conditions and calibrate its policy tools as appropriate,” Tetangco said.

While the Monetary Board also maintained the 1.4-percent inflation target for 2015, it raised projections for 2016 and 2017 to 2.4 percent (from 2.3 percent) and 3.2 percent (from 2.9 percent), respectively.

BSP Deputy Governor Diwa C. Guinigundo told reporters that there were three reasons for the higher inflation forecasts for the next two years: The higher reading of the November inflation rate; the impact of the weakening peso against the US dollar, and the increase in prices of some key food commodities because of weather disturbances.

Inflation, or the rate of increase in the prices of basic goods, rose to 1.1 percent last November from the record-low of 0.4 percent posted in the two preceding months mainly due to a sharp rise in the prices of a number of food items as a result of Typhoon “Lando” that hit most parts of Luzon island last October.

Also, Tetangco cited that “potential upward pressures could come from the impact of prolonged El Niño dry weather conditions on food prices and utility rates as well as pending petitions for power rate adjustments.”

In terms of the foreign exchange, “the depreciation of the peso against the US dollar could impose some pressures on inflation moving forward,” Guinigundo explained. Ben O. de Vera