BSP keeps key policy rates unchanged

Monetary authorities Wednesday kept key policy rates steady given a sustained favorable inflation outlook.

Following the policy-setting meeting of the Monetary Board Wednesday, Bangko Sentral ng Pilipinas Governor Amando M. Tetangco Jr. said they had maintained at 4 percent the overnight borrowing or reverse repurchase (RRP) rate and the 6 percent overnight lending or repurchase facility (RP) rate.

The Monetary Board likewise kept the interest rates on term RRPs, RPs and special deposit accounts (SDA) and the reserve requirement ratios, according to Tetangco.

“The Monetary Board’s decision is based on its assessment of a continuing manageable inflation environment,” Tetangco said, adding that the board still see the average increase in prices of basic goods settling within the government’s target range of 2-4 percent this year and next year.

Separately, BSP Deputy Governor Diwa C. Guinigundo told reporters that the BSP was keeping its inflation forecasts at 2.1 percent for 2016 and 3.1 percent for 2017.

Tetangco said risks to the inflation outlook remained tilted to the downside. Inflation averaged 1.1 percent in the first four months.

“Inflation expectations for 2016 have declined slightly due to low inflation readings in recent months but remain firmly within the inflation target band over the policy horizon,” Tetangco said.

The BSP chief said downward price pressures come from the “slower-than-expected” global economy as well as potential second-round effects from cheap oil.

Tetangco nonetheless said the impact of the dry spell due to El Niño on food prices and utility rates as well as the pending petitions for power rate hikes might push inflation higher.

In general, the BSP remained bullish about domestic growth.

“The Monetary Board also recognized that while global economic conditions have become weaker since the previous meeting, prospects for domestic economic activity remain robust, supported by solid private household consumption and investment, buoyant business sentiment, and adequate credit and domestic liquidity. Higher fiscal spending is expected to further boost domestic demand,” Tetangco said.