BSP maintains key rates, cuts inflation forecast

The Bangko Sentral ng Pilipinas’ Monetary Board on Thursday kept its policy rates unchanged while slightly cutting its inflation forecast for 2016 to 2.2 percent.

The policy-setting body of the BSP maintained the overnight borrowing or reverse repurchase (RRP) facility at 4 percent and the overnight lending or repurchase (RP) facility at 6 percent.

The Monetary Board also kept the interest rates on term special deposit accounts (SDA) and the reserve requirement ratios.

“The Monetary Board’s assessment of manageable inflation dynamics and robust growth conditions continue to support steady monetary policy settings,” BSP Governor Amando M. Tetangco Jr. said in a briefing after the meeting.

“Average inflation is projected to settle within the target range of 2-4 percent for 2016 to 2017, while inflation expectations remain firmly anchored within the inflation target band over the policy horizon,” said Tetangco, who chairs the Monetary Board.

Deputy Governor Diwa C. Guinigundo told reporters that the BSP had cut its average inflation forecast for this year from 2.4 percent.

Guinigundo explained that the slight reduction was on the back of the 50-centavo cut in jeepney fares implemented last month as well as lower crude oil prices.

According to Tetangco, “the risks surrounding the inflation outlook have shifted slightly to the downside.”

Tetangco said downward pressures remained the “slower-than-expected” global economic activity as well as a possible second-round impact of cheaper global oil prices.

Upside risks, meanwhile, were seen emanating from the effect of the prolonged dry spell due to El Niño especially on food prices and water and power rates on top of pending petitions for power rate hikes, the BSP chief said.

“The Monetary Board observed that domestic demand conditions are likely to stay firm, supported by solid private household and capital spending, buoyant market sentiment, and adequate domestic liquidity,” Tetangco said.