Thursday, March 23, 2017

Philippines holds rate, inflation forecasts slightly down

    The central bank of the Philippines maintained its key overnight reverse repurchase rate (RRP) at 3.0 percent, as widely expected, and said the latest forecasts for inflation were "slightly lower" than previous forecasts though still within its target range for this year and next.
    Bangko Sentral ng Pilipinas (BSP), which has kept its monetary policy stance since September 2014 on "manageable" inflation, reiterated its view from February that the balance of risks surrounding inflation remain tilted to the upside due to the temporary impact of possible changes to transport fares and electricity rates and a proposed reform of taxes.
    On the other hand, the central bank said lingering uncertainty over the global economy, due to "possible shifts in macroeconomic policies in advanced economies" continues to pose a downside risk to the inflation outlook.
     Although inflation in the Philippines ticked up to 3.3 percent in February for the highest rate since November 2014 on higher food and oil prices, the BSP said latest baseline forecasts were slightly down but still within its target range of 3.0 percent, plus/minus 1 percentage point.
    Last month the BSP raised its 2017 inflation forecast to 3.5 percent from 3.3 percent and the 2018 forecast to 3.3 percent from 3.1 percent.
     Inflation expectations remain anchored to the inflation target, the central bank added.
     Today's policy decision was widely expected by investors and follows the central bank governor's statement from last week that policy settings would likely remain unchanged following the U.S. Federal Reserve's latest tightening, which he said would benefit global growth and U.S. trading partners, including the Philippines.
     Although the BSP's monetary policy stance has been steady since September 2014, the RRP rate was lowered by 100 basis points last year when it adopted an interest corridor system.
     The BSP also said it expected domestic economy activity to remain firm, supported by household consumption and private investment, increased government spending and ample credit and liquidity.
     The Philippine economy grew by 6.8 percent last year, up from 5.9 percent in 2015, and the International Monetary Fund last month raised its 2017 growth forecast to 6.8 percent from 6.7 percent on strong domestic demand.

    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 that the outlook for inflation remains manageable, consistent with favorable growth prospects. While the average headline inflation for the first two months of 2017 has risen due to the recent increases in food and oil prices as well as base effects, latest baseline forecasts are slightly lower than previous forecasts and within the target range of 3.0 percent ± 1 percentage point for 2017-2018. Inflation expectations also remain anchored to the inflation target over the policy horizon.
The Monetary Board also observed that the balance of risks surrounding the inflation outlook remains tilted toward the upside, given the transitory impact of the proposed tax reform program as well as possible adjustments in transportation fares and electricity rates. Meanwhile, lingering uncertainty over the prospects of the global economy, due in part to possible shifts in macroeconomic policies in advanced economies, continues to pose a key downside risk to the inflation outlook. The Monetary Board also noted the beneficial effects on inflation of the removal of quantitative restrictions on rice importation. The Board emphasized that domestic economic activity is projected to stay firm, supported by buoyant household consumption and private investment, increased government spending, and ample credit and liquidity.
With these considerations, the Monetary Board believes that prevailing monetary policy settings remain appropriate. Looking ahead, the BSP will continue to monitor evolving economic conditions to ensure price and financial stability conducive to sustainable economic growth."


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