Thursday, November 10, 2016

Philippines keeps rate, risks to inflation still to upside

    The Philippine central bank left its benchmark overnight repurchase rate (RRP) steady at 3.0 percent, as widely expected, but said the "overall balance of risks surrounding the inflation  outlook remains tilted to the upside," a slightly more hawkish view than in September when it said the risk "appears" to be tilted to the upside.
    Bangko Sentral ng Pilipinas (BSP) has maintained its monetary policy stance since a rate hike in September 2014 though the RRP rate was lowered by 100 basis points in June as part of a shift to an interest rate corridor system.
    Although the central bank still considers inflation to be "manageable," it is slowly becoming more concerned over inflation after it in August described the balance of risks to inflation as "broadly balanced."
    This concern is echoed by economists and financial markets that are starting to expect the BSP to raise its rates in 2017 to curb inflation.
     Inflation in the Philippines rose to 2.3 percent in October, the same level as in September and the highest since March 2015 on higher food prices.
    The BSP confirmed that it expects inflation to average slightly below the lower edge of its target range this year and then rise toward the mid-point target in 2017 and 2018.
     The BSP targets inflation of 3.0 percent, plus/minus 1 percentage points.
    The risks to inflation stem from pending petitions for higher electricity rates and the government's proposed reform of taxes, BSP said.

    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 inflation continues to be manageable, with a gradual return to the inflation target range expected over the policy horizon. While latest forecasts indicate that average inflation is likely to settle slightly below the lower edge of the 3.0 percent ± 1.0 percentage point target range in 2016, it is projected to rise toward the mid-point of the target range in 2017 and 2018. The overall balance of risks surrounding the inflation outlook remains tilted to the upside owing largely to the pending petitions for adjustments in electricity rates along with the proposed tax policy reform program. Slower global economic activity continues to be a key downside risk. Meanwhile, inflation expectations remain broadly consistent with the inflation target over the policy horizon.

At the same time, the Monetary Board also observed that prospects for global economic growth remain modest and uneven since the previous meeting. Moreover, monetary policies in major advanced economies continue to be asynchronous and the prospects uncertain. On the other hand, domestic economic activity is seen to remain firm, supported by solid private household consumption and investment, buoyant business and consumer sentiment, and adequate credit and domestic liquidity. Higher fiscal spending is also expected to further boost domestic demand in the near term.

On balance, the assessment of recent new information continues to support keeping monetary policy settings unchanged. Going forward, the BSP will continue to monitor emerging price and output conditions to ensure price and financial stability conducive to sustained economic growth."


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