Thursday, August 13, 2015

Philippines maintains rates as inflation to slowly rise

    The central bank of the Philippines left its key policy rates unchanged, as expected, saying the recent "benign inflation outturns" were the result of temporary favorable supply-side conditions and inflation is forecast to rise gradually and stabilize in the lower half of the target range.
    Bangko Sentral ng Pilipinas (BSP), which raised its rate 50 basis points in 2014 to curb inflationary expectations, added that "the recent developments on the global front require careful monitoring, as they could pose threats to financial stability."
    The central bank's latest forecasts show that inflation should settle "slightly below" the BSP's target range in 2015 but then remain within the range over the rest of the forecast horizon, with inflation expectations anchored within the range.
    The BSP, which targets 3.0 percent, plus/minus 1 percentage point, also pointed to upside risks to inflation from pending petitions for higher power rates and the impact of dry weather on food and utility rates. On the other hand, slower economic activity could pose downside inflation risks.
    Inflation in the Philippines declined to 0.8 percent in July, the slowest pace on record, from 1.2 percent in June.
    Earlier this week BSP Governor Amando Tetangco told Congress that the central bank's monetary policy remains appropriately calibrated with growth on a strong path despite a weak first quarter and inflation on a manageable path.
    While economists had widely expected the BSP to retain its key rates, including the benchmark overnight borrowing or reverse repo rate at 4.0 percent, some investors were speculating the central bank could cut its reserve requirement to pump more money into the economy.
    The economy of the Philippines expanded by only 0.3 percent in the first quarter from the previous quarter for annual growth of 5.2 percent, down from 6.6 percent.
    In May the International Monetary Fund (IMF) said the prospects for the Philippine economy remain favorable despite weaker global growth with GDP this year forecast to grow 6.7 percent as lower commodity prices lift household consumption and public spending rises.
    In 2016 growth is expected to ease to 6.3 percent as the stimulus from lower oil and fiscal policy wanes.


    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 4.00 percent for the overnight borrowing or reverse repurchase (RRP) facility and 6.00 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 decision is based on its assessment that prevailing price and output conditions support maintaining current monetary policy settings. Latest baseline forecasts show that inflation could settle slightly below the target range for 2015 but is likely to remain within the target range of 3.0 percent ± 1 percentage point over the rest of the policy horizon. Inflation expectations also continue to be anchored within the inflation target band.  Meanwhile, the Monetary Board noted the upside risks coming from pending petitions for power rate adjustments and the impact of stronger-than-expected El Niño dry weather conditions on food prices and utility rates. On the other hand, modest rise in food and commodity prices, and slower global economic activity could pose downside risks to inflation. 

In deciding to keep the BSP’s monetary policy settings unchanged, the Monetary Board observed that the recent benign inflation outturns have been the result of favorable supply-side conditions, which are seen as largely transitory. Over the policy horizon, inflation is projected to rise gradually and stabilize within the lower half of the inflation target range. At the same time, the Monetary Board noted that recent developments on the global front require careful monitoring, as they could pose threats to financial stability.

Given these considerations, the Monetary Board believes that prevailing monetary policy settings remain appropriately calibrated at this time. The BSP will continue to keep a watchful eye on domestic and external conditions to ensure that the monetary policy stance stays in line with maintaining price and financial stability."

    www.CentralBankNews.info


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