BSP keeps key rates steady due to manageable inflation outlook | Inquirer Business

BSP keeps key rates steady due to manageable inflation outlook

By: - Reporter / @bendeveraINQ
/ 05:46 PM December 14, 2017

The Bangko Sentral ng Pilipinas kept key interest rates steady at its last meeting on monetary policy for the year on expectations of manageable inflation in the near term.

Deputy Governor Diwa C. Guinigundo said the decision of the Monetary Board, the BSP’s highest policymaking body, was “based on its assessment that the outlook for the inflation environment has been broadly unchanged.”

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“This is indicated by the latest baseline forecasts remaining within the target range of 2-4 percent for 2018 to 2019. Inflation expectations also continue to be firmly anchored to the target over the policy horizon,” Guinigundo explained.

Guinigundo said the Monetary Board kept the inflation forecasts of 3.2 percent for 2017, 3.4 percent for 2018, and 3.2 percent for 2019.

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As of end-November, inflation averaged 3.2 percent.

“The overall balance of risks to the inflation outlook remains tilted toward the upside due in part to possible higher crude oil prices. While there may be potential transitory effects on consumer prices from the proposed tax reform program, various mitigation measures and the resulting improvement in output and productivity are also expected to temper the impact on inflation over the medium term,” Guinigundo said.

The first tax reform package that will slash personal income tax rates while jacking up taxes slapped on consumption is expected to be signed by President Duterte before yearend in order to be implemented early next year.

Also, “the proposed reforms in the rice industry involving the replacement of quantitative restrictions with tariffs and the deregulation of rice imports could serve to reduce inflation,” Guinigundo added.

According to Guinigundo, “the Monetary Board also observed that geopolitical tensions and lingering uncertainty over macroeconomic policies in advanced economies continue to pose downside risks to the near-term prospects for global economic growth.”

Still, “the Monetary Board emphasized that prospects for domestic economic activity are likely to remain firm owing to buoyant consumer and business sentiment and ample liquidity,” according to Guinigundo.

“As credit continues to expand in line with output growth, the Monetary Board remains watchful over evolving liquidity and credit conditions and their implications for price and financial stability,” Guinigundo said.

In a note to clients, London-based economic research firm Capital Economics said “we continue to think that the policy rate will remain unchanged at 3 percent over the course of next year.”

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TAGS: Bangko Sentral ng Pilipinas, Diwa C. Guinigundo, inflation forecasts, Interest rates‎, monetary board
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