The Bangko Sentral ng Pilipinas (BSP), which raised its rate by 50 basis points in 2014 to rein in inflation expectations, said its latest forecast shows a lower inflation path but still within its 2015 target of 3.0 percent, plus/minus 1 percentage point, and expectations are firmly anchored.
Headline inflation eased to 2.4 percent in January from 2.7 percent in December, with inflation pressures easing due to lower oil prices.
Economic growth is expected to be supported by buoyant private demand, sustained bank lending and upbeat business sentiment, the bank said.
The Philippine's Gross Domestic Product expanded by a stronger-than-expected 2.5 percent in the fourth quarter of 2014, up from 0.7 percent in the third quarter, for annual growth of 6.9 percent, up from 5.3 percent in the previous quarter.
The BSP's decision was widely expected following recent statements by its governor, Amando Tetangco. Last week he said he saw no urgency in changing the current policy settings given slowing inflation and sustained economic growth.
Bangko Sentral ng Pilipinas issued the following statement:
"At its meeting today, the Monetary Board decided to maintain the BSP's key policy rates at 4.0 percent for the overnight borrowing or reverse repurchase (RRP) facility and 6.0 percent for the overnight lending or repurchase (RP) facility. The interest rates on term RRPs, RPs and special deposit accounts (SDA) were also kept steady. The reserve requirement ratios were left unchanged as well.
The Monetary Board’s decision is based on its assessment that prevailing monetary policy settings remain appropriate. Latest baseline forecasts show a lower inflation path within the target range of 3.0 percent ± 1 percentage point for both 2015 and 2016, while inflation expectations remain firmly anchored. Inflation pressures have moderated further since the previous monetary policy meeting, reflecting mainly the significant decline in international oil prices. At the same time, the Monetary Board observed that prospects for domestic activity continue to be firm, and positive growth dynamics are expected to be supported by buoyant private demand, sustained bank lending growth, and upbeat business sentiment.
The Monetary Board also noted that the risks to the baseline inflation forecast remain broadly balanced, with potential price pressures emanating from pending petitions for adjustments in utility rates and possible power shortages. Meanwhile, downside risks could arise from possible slower-than-expected global economic activity.
Given these considerations, the Monetary Board is of the view that the within-target inflation outlook and robust domestic growth support keeping policy settings steady. Going forward, the BSP will continue to monitor developments affecting the inflation outlook to ensure that the monetary policy stance remains consistent with its price and financial stability objectives. "