Central bank opts to keep key rates steady

The Bangko Sentral ng Pilipinas on Thursday kept its key policy rates unchanged as it saw no need to make adjustments given the country’s benign inflation and robust economic growth.

The central bank’s overnight borrowing and lending rates remain at 3.5 and 5.5 percent, respectively.

The BSP likewise maintained the interest rate on special deposit accounts (SDAs) at 2 percent.

“The Monetary Board’s decision is based on its assessment of a benign inflation environment…. Domestic economic activity has also been growing at a solid pace, supported by firm demand and buoyant business sentiment,” BSP Governor Amando Tetangco Jr. on Thursday said in a briefing.

Reports showed that the rate of rise in consumer prices remained modest so far this year, staying below the low end of the government’s target.

The National Statistics Office earlier reported that annual inflation settled at a four-year low of 2.1 percent in August, bringing the average for the first eight months of the year to 2.8 percent.

The government wants to limit the rate of increase in consumer prices this year to within a range of 3 and 5 percent.

BSP Governor Diwa Guinigundo said in the same briefing that, based on the central bank’s latest simulations, inflation could average at 3 percent this year, 3.9 percent next year, and 3.5 percent in 2015.

Still, the BSP said it would closely monitor developments in Syria given the potential impact on domestic prices. The likelihood of a US military strike in Syria has caused global oil prices to rise.

Also, the modest rate of rise in consumer prices came about despite the economy’s robust growth.

BSP officials explained that rising investments somehow helped in minimizing the impact of a moderate rate of rise in consumer prices.

Unlike in the past when the country’s economic growth was driven largely by consumer spending, economic expansion last year and this year has been driven by investments from domestic firms.

Rising investments help boost the supply of goods and services, officials said, thereby tempering inflationary pressures brought on by rising consumer demand.

With inflation in check, officials said, the BSP sees no reason to raise interest rates. A hike in interest rates would have tempered demand for bank loans and eased the rise in consumer spending.