Inflation-wary BSP keeps rates steady

Bangko Sentral ng Pilipinas. INQUIRER.net FILE PHOTO

The central bank kept policy rates on hold Thursday, exhibiting restraint amid the temptation to make adjustments due to record-low inflation and volatile conditions in financial markets.

Officials on Thursday said there was enough money in circulation to meet the economy’s needs. Demand conditions from consumers and businesses also remain robust, the Bangko Sentral ng Pilipinas (BSP) said, adding that any boost to the economy to address the recent slowdown should come from fiscal authorities.

“We don’t see the urgency at this point to adjust monetary policy,” BSP Deputy Governor Diwa C. Guinigundo said at a press conference.

Following the policymaking Monetary Board’s Thursday meeting, the BSP said overnight borrowing and lending rates were kept at 4 and 6 percent, respectively.

In keeping monetary policy steady, the BSP said it wanted to keep banks from taking excessive risks, which may lead to artificially inflated asset prices.

Ahead of the meeting, banks polled by the Inquirer were split on whether the BSP would announce 1-percentage-point cut in reserve requirements for bank deposits. Such a move would have released P67 billion in fresh cash into the economy.

“That would abet excessive risk-taking by banks,” Guinigundo said.

The reserve requirement for major banks, referring to the proportion of clients’ deposits that should be kept idle with the BSP, was kept at 20 percent. The BSP adjusts reserve requirement levels depending on how much money the economy needs to grow without stoking inflation.

For all of 2015, consumer prices are expected to rise by an average of 1.8 percent, or lower than the central bank’s target range of 2 to 4 percent. Next year, inflation will rise to 2.5 percent, projections showed.

Guinigundo said below-target inflation was not a concern for the central bank, noting that the decline would be caused by supply-side factors that the BSP has no power over. Policies set by the central bank affect demand conditions in the economy.