BSP, which in June last year lowered its overnight reverse repurchase (RRR) by 100 basis points to 3.0 percent as part of a shift to an interest corridor system, added the balance of risks surrounding the inflation outlook continue to be to the upside given possible changes to electricity rates and the government's fiscal reform.
"Meanwhile, uncertainty over global growth prospects continues to pose a key downside risk to the inflation outlook," the central bank said.
Inflation in the Philippines rose to 2.7 percent in January, the highest since December 2014, but remains within the BSP's target range of 3.0 percent, plus/minus 1 percentage point.
Inflation expectations are in line with the target, BSP added.
The economy of the Philippines expanded by an annual rate of 6.6 percent in the fourth quarter of 2016, down from 7 percent in the preceding two quarters, and is expected to remain firm, helped by buoyant household consumption and private investment.
Earlier this month the country's economic planning secretary, Ernesto Pernia, said the government was confident of hitting its 2017 growth target of 6.5-7.5 percent.
However, the central bank also "stressed" that the global economic environment had become more challenging due to expected shifts in the policies of advanced economies and the normalization of U.S monetary policy.
The Philippine peso has been trending downward against the U.S dollar since the "taper tantrum" of April 2013 but has been stable since November last year. Today the peso was trading at 49.9 to the dollar, largely unchanged from 49.6 at the start of this year.
Bangko Sentral ng Pilipinas issued the following statement:
"At its meeting today, the Monetary Board decided to maintain the interest rate on the BSP’s overnight reverse repurchase (RRP) facility at 3.0 percent. The corresponding interest rates on the overnight lending and deposit facilities were also kept steady. The reserve requirement ratios were likewise left unchanged.
The Monetary Board’s decision is based on its assessment of inflation dynamics and the risks to the inflation outlook over the policy horizon. While inflation has risen due to the recent increases in food and oil prices, latest baseline forecasts continue to indicate that the future inflation path will remain within the target range of 3.0 percent ± 1 percentage point for 2017-2018. Inflation expectations are also aligned with the inflation target over the policy horizon.
The Monetary Board further noted that the balance of risks surrounding the inflation outlook continues to be weighted toward the upside, given possible adjustments in electricity rates as well as the initial impact of the government’s broad fiscal reform program. Meanwhile, uncertainty over global growth prospects continues to pose a key downside risk to the inflation outlook. The Monetary Board stressed that while the global economic environment has become more challenging due to expected shifts in macroeconomic policies in advanced economies, including the ongoing normalization of monetary policy in the US, domestic economic activity is expected to stay firm, supported by buoyant household consumption and private investment, increased fiscal spending, and ample credit and liquidity.
With these considerations, the Monetary Board believes that prevailing monetary policy settings remain appropriate. Going forward, the BSP will continue to monitor and assess evolving economic developments and will calibrate its policy tools as appropriate to ensure sustained price and financial stability."