Bangko Sentral ng Pilipinas (BSP), which has kept rates steady since September 2014, confirmed that it still expects inflation to settle within its target range of 3.0 percent, plus/minus 1 percentage point, in 2016-2017.
The BSP also reiterated its view from the previous meeting in February that the risks to the outlook for inflation remain tilted to the downside from slower-than-expected global economic activity and potential second-round effects from lower oil prices.
Upside risks to inflation emanate from the impact of the dry weather from El Nino on food prices and utility rates as well as pending petitions for power rate changes.
The BSP made no reference to the implementation of its new interest rate structure.
On Tuesday the BSP's deputy governor, Diwa Guinigundo, said the central bank was on track to implement the interest rate corridor system (IRC) in the second quarter and an announcement would be made 15 days prior to the implementation, aimed at improving the transmission of the bank's monetary policy to money market rates.
Consumer prices in the Philippines rose by an annual rate of 0.9 percent in February, down from January's 1.3 percent, while Gross Domestic Product grew by an annual 6.3 percent in the fourth quarter of 2015, up from 6.1 percent in the third quarter.
Last month the International Monetary Fund (IMF) said the Philippine economy had "performed remarkably well" in the face of the weak external environment and 2016 growth was projected to rise to 6.0 percent from 5.8 percent in 2015 and then to 6.2 percent in 2017.
Inflation averaged 1.4 percent in 2015 and should rise to 2 percent this year, the IMF said Feb. 17.
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 likewise left unchanged.
The Monetary Board’s assessment of manageable inflation outlook and robust growth conditions continue to support keeping monetary policy settings unchanged.
Latest forecasts indicate that average inflation is likely to settle within the target range of 3.0 percent ± 1 percentage point for 2016-2017, while inflation expectations continue to be firmly anchored within the inflation target band over the policy horizon. The Monetary Board also noted that the risks surrounding the inflation outlook have remained tilted to the downside, as downward price pressures could arise from slower-than-expected global economic activity and potential second-round effects from lower international oil prices. Meanwhile, upside risks to the inflation outlook persist, particularly those that could emanate from the impact of El Niño dry weather conditions on food prices and utility rates as well as pending petitions for power rate adjustments.
At the same time, the Monetary Board observed that domestic demand conditions continue to be buoyant, supported by solid private household and capital spending, positive business sentiment, and adequate credit and domestic liquidity. The Monetary Board also recognized that uncertainty over economic growth prospects across the globe could continue to drive volatility in global financial markets in the months ahead.
Given these considerations, the Monetary Board affirmed the need to keep a watchful eye over domestic and external developments to ensure that the monetary policy stance remains in line with the BSP’s price and financial stability objectives."