Key rates steady; inflation forecast raised

Monetary authorities kept key policy rates unchanged Thursday but decided to raise inflation forecast for this year amid a weaker peso and rebounding global oil prices.

Following the meeting of the policy-setting Monetary Board, Bangko Sentral ng Pilipinas Governor Amando M. Tetangco Jr. told a press conference that the policy rate was maintained at 3 percent and the other interest rates and reserve requirement ratios untouched as well.

“Inflation continues to be manageable, with a gradual return to the inflation target range expected over the policy horizon,” he said. Inflation or the rate of increase in prices of basic goods averaged 1.6 percent as of end-October, below the 2-4 percent full-year government target.

BSP Deputy Governor Diwa C. Guinigundo also told reporters they raised inflation forecasts for 2016 and the next two years amid recovering petroleum prices and the depreciation of the peso.

Guinigundo said the updated forecasts were 1.8 percent for 2016 (from 1.7 percent previously), 3 percent for 2017 (from 2.9 percent), and 2.9 percent for 2018 (from 2.6 percent).

The higher-than-expected headline inflation figures in September and October were also factors in the revised forecasts, Guinigundo said. Inflation rose 2.3 percent both in September and October from the record-low 0.4 percent a year ago.

Tetangco said inflation is projected to rise toward the midpoint of the 2-4 percent target range next year and in 2018, with risks tilted toward the upside mainly due to pending petitions for higher electricity rates as well as the impact of the proposed tax policy reform program.

The revenue-generating measures in the Department of Finance’s comprehensive tax reform package include higher excise taxes on oil products and imported vehicles, which are seen to hike transportation costs.