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Bangko Sentral keeps rates steady

Monetary authorities declare victory in war against inflation
By: - Reporter / @daxinq
/ 04:28 AM December 13, 2019

The central bank on Thursday declared victory in its war against inflation—which it had been waging for two years now—saying prices of consumer goods and services for next year and beyond will likely be “benign.”

This developed as Bangko Sentral ng Pilipinas Governor Benjamin Diokno announced that the policy-making Monetary Board decided to maintain the interest rate on the BSP’s overnight reverse repurchase facility at 4 percent during its final meeting of the year.

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Accordingly, the interest rates on the overnight deposit and lending facilities were kept unchanged at 3.5 percent and 4.5 percent, respectively.

“The Monetary Board’s decision is based on its assessment of a benign inflation environment,” the country’s chief inflation buster said in a press briefing. “Latest baseline forecasts indicate that the future inflation path remains within the target range of 3 percent, plus or minus 1 percentage point in 2020-2021, with well-anchored inflation expectations.”

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At the same time, Diokno sought to manage the market’s expectations, saying that the balance of risks to the inflation outlook continued to lean slightly toward the upside in 2020, but toward the downside in 2021.

“Upside risks to inflation over the near term emanate mainly from potential volatility in international oil prices amid geopolitical tensions in the Middle East as well as from the potential impact of the African Swine Fever outbreak and recent weather disturbances on domestic food prices,” he said.

But this would be offset by prevailing uncertainties over trade policies in major economies, which would continue to weigh down on global economic activity and demand and could thus mitigate upward pressures on commodity prices.

The central bank said it believed that, notwithstanding the weak global growth outlook, prospects for the Philippine economy continued to be robust on the back of firm domestic demand. Sustained policy support from increased fiscal spending as well as improved domestic liquidity conditions owing to recent monetary adjustments are also expected to support growth in the coming months.

“Given these considerations, the Monetary Board is of the view that the within-target inflation outlook and solid prospects for domestic growth support keeping monetary policy settings steady,” Diokno said. “Going forward, the BSP will continue to monitor developments affecting the inflation outlook and demand conditions to ensure that the monetary policy stance remains consistent with its price and financial stability objectives.”

Meanwhile, market watchers said the central bank was poised to reduce interest rates early next year to help spur economic growth, which has underperformed this year and would likely come in at the lower end of the government’s 6-6.5 percent forecast range.

“Given this outlook, we expect the BSP to cut its policy rate by 25 basis points as early as the February 2020 meeting and ease by a total of 50 basis points next year,” ING Manila senior economist Nicholas Mapa said in an emailed note to reporters.

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He added that the central bank chief would likely bide his time with regard to further reductions in banks’ reserve requirement as he chooses to gauge whether the deluge of liquidity released from previous cuts were actually feeding into the productive sectors of the economy.

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