BSP keeps key rates steady

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The Bangko Sentral ng Pilipinas (BSP) on Thursday kept interest rates at record lows despite a faster-than-expected increase in consumer prices in January.

But monetary officials cited risks to price stability, namely possible increases in food prices due to recent natural calamities and the chance of a power rate hike in Metro Manila by March.

“While inflation has risen slightly due mainly to the recent increase in food prices on account of adverse weather conditions, latest baseline forecasts continue to indicate that the future inflation path is likely to stay within target,” BSP Governor Amando M. Tetangco Jr. said in a statement. “Market expectations remain anchored to the inflation target over the policy horizon.”

The BSP’s overnight borrowing and lending rates were kept at their record lows of 3.5 and 5.5 percent, respectively. The central bank’s reserve requirement ratios for banks and yields for special deposit accounts were also untouched.

Forecasts for inflation were revised to 4.3 percent for 2014 from the previous 4.5 percent, and to 3.3 percent for 2015, from 3.2 percent. The new forecasts are still within the central bank’s target ranges of 3 to 5 percent for 2014, and 2 to 4 percent for 2015.

Last month, inflation accelerated to 4.2 percent from 4.1 percent in December. Earlier this week, Tetangco noted a “narrowing” in the BSP’s space to keep policy rates at their current record lows.

Diwa C. Guinigundo, deputy governor of the BSP’s Monetary Stability Sector, said the delayed implementation of Manila Electric Co.’s power rate hike was partly to blame for the lower forecast inflation for the year.

Food prices also threaten price stability due to natural calamities late last year and early this year.

“Already in the first two months, we’ve seen a series of natural calamities with damage on property, lives and crops. This is something we are monitoring. The possibility of the impact on food prices should be considered in the assessment,” Guinigundo said.