BSP keeps key policy rates steady

Bangko Sentral ng Pilipinas Gov. Nestor Espenilla Jr. (File photo by JOSEPH AGCAOILI / Philippine Daily Inquirer)

Amid expectations of manageable inflation in the near term, the Bangko Sentral ng Pilipinas (BSP) on Thursday kept key policy rates steady even as it slightly raised the inflation forecast for 2019 due to the weaker peso and uptick in oil prices.

In a press conference after the Monetary Board meeting, BSP Gov. Nestor A. Espenilla Jr. said the BSP’s highest policymaking body maintained the policy rate, or overnight reverse repurchase facility, at 3 percent, alongside keeping the overnight lending and deposit facilities.

The Monetary Board also left the reserve requirement ratios unchanged, said Espenilla, who chairs the board.

“The Monetary Board’s decision is based on its assessment that the inflation environment remains manageable,” Espenilla said. “Latest forecasts show the future inflation path will continue to be within the target range for 2017-2019. Meanwhile, inflation expectations remain firmly anchored close to the midpoint of the government’s 2 to 4 percent target over the policy horizon.”

“The balance of risks to the inflation outlook also continues to be on the upside,” he added. “While the proposed tax reform program may exert potential transitory pressures on prices, various social safety nets and the resulting improvement in output and productivity are also expected to temper the impact on inflation over the medium term.”

The proposed first package of the Duterte administration’s comprehensive tax reform program – which aims to reduce personal income tax rates while jacking up taxes on consumption – will be up for discussion at the Senate plenary starting next week, as the government eyes its implementation early next year.

“While prospects for global economic growth have stayed broadly upbeat, geopolitical tensions and lingering uncertainty over macroeconomic policies in advanced economies continue to pose downside risks to external demand,” Espenilla said.

“The outlook for domestic economic activity remains firm, supported by positive consumer and business sentiment and ample liquidity,” he added. “Moreover, as credit for production activities continues to expand in line with output growth, the economy’s absorptive capacity is likewise seen to improve, thus mitigating inflation pressures over the long run. Nonetheless, the Monetary Board remains watchful over evolving economic growth and liquidity conditions and their implications for price and financial stability.”

“Based on these considerations, the Monetary Board believes that prevailing monetary policy settings continue to be appropriate,” he went on. “Looking ahead, the BSP will continue to be vigilant against any risks to the inflation outlook and will adjust its policy settings as needed to ensure stable prices while supporting sustainable economic growth.”

Meanwhile, BSP Dep. Gov. Diwa C. Guinigundo told reporters that the Monetary Board at Thursday’s meeting kept the inflation forecasts of 3.2 percent for both 2017 and 2018.

However, the forecast for 2019 was slightly raised to also 3.2 percent from 3.1 percent previously on the back of the peso’s depreciation, higher global oil prices, high liquidity and approved adjustment in wages, Guinigundo said.

In a note to clients, London-based economic research firm Capital Economics said that “with the economy growing at a decent pace and the outlook remaining positive, there is little need for more supportive monetary policy.”

“We continue to think that the policy rate will remain unchanged at 3 percent throughout 2017 and 2018,” Capital Economics added. /atm