The central bank yesterday paused its monetary easing drive, opting to leave its key interest rates unchanged to make sure the surprise uptick in consumer prices in May would not be aggravated by additional liquidity in the local economy.
In a briefing, Bangko Sentral ng Pilipinas Governor Benjamin Diokno described the inflation outlook for the rest of the year and 2020 as “broadly balanced.”
Because of this, the Monetary Board decided to keep the interest rate on the BSP’s overnight reverse repurchase facility unchanged at 4.5 percent, while the interest rates on the overnight lending and deposit facilities were likewise held steady.
“The latest baseline forecasts indicate that inflation remains likely to settle within the target range of 3 percent, plus or minus 1 percentage point for both 2019 and 2020, while inflation expectations have moderated further,” he said.
The BSP’s decision to ease off the economy’s accelerator pedal was in line with other central banks overseas which also opted to keep their own interest rates steady on Thursday, albeit signaling they were ready to inject their economies with more cash over the near term.
Diokno—who has repeatedly reiterated his preference for looser monetary policy to help the Philippine economy sustain its growth momentum—said the Monetary Board also noted that overall domestic economic activity was “likely to remain firm, supported by a projected recovery in household spending and the continued implementation of the government’s infrastructure spending program,” despite real sector activity having moderated in the first quarter of the year.
The central bank chief noted that weaker global economic prospects amid a possible easing in global demand and increased trade tensions continued to temper the inflation outlook.
But he also warned that the potential adverse effects of a prolonged El Niño episode remained a key upside risk to inflation.
“On balance, therefore, the Monetary Board believes the manageable inflation outlook and firm domestic growth prospects support keeping monetary policy settings steady for the time being,” he said.
“A prudent pause allows the BSP to observe and assess the impact of prior monetary adjustments including the phased reduction in the reserve requirements to be completed by the end of July,” Diokno said.
He added that, going forward, the BSP would continue to monitor emerging price and output conditions to ensure that monetary policy remained in line with its price stability objective while being supportive of economic growth.