Thursday, November 9, 2017

Philippines maintains rate, inflation seen in target

       The Philippines' central bank kept its key overnight reverse repurchase rate (RRP) at 3.0 percent, as expected, saying inflation is still expected to remain within the government's target range for 2018 and 2019 despite trending upwards on higher utility rates and fuel prices.
        But Bangko Sentral ng Pilipinas (BSP), which has kept its monetary policy stance since September 2014 on "manageable" inflation, said the balance of risks to inflation continue "to lead toward the upside due to possible higher crude oil prices."
      In addition, a proposed tax reform and put temporary pressure on prices while a proposed reform in the rice industry and deregulation of rice imports could temper inflation.
      Inflation in the Philippines rose to 3.5 percent in October from 3.4 percent in September, within the target range of 3.0 percent, plus/minus 1 percentage point.
       In a briefing, BSP's Deputy Governor Diwa Guinigundo said the bank's forecast for 2018 average inflation had been raised to 3.4 percent from a previous 3.2 percent, while the outlook for 2017 and 2019 inflation was retained at 3.2 percent, according to press reports.
      On Monday the International Monetary Fund said the BSP's monetary policy stance remained appropriate but it should be ready to tighten if there were signs of overheating. It also said plans to unwind banks' high reserve requirements would help reduce macro financial risks but this should be done carefully to ensure that domestic liquidity is broadly unchanged.
      The BSP said the outlook for domestic economic activity remains firm, supported by positive sentiment among consumers and business and while credit is expanding in line with output growth, the central bank said it remains watchful over the implications of liquidity and credit conditions for price and financial stability.
       The Philippine economy expanded by an annual 6.5 percent in the second quarter, up from 6.4 percent in the first and the IMF forecast growth this year of 6.6 percent and 6.7 percent in 2018. Last year it grew 6.8 percent.
       The Philippine peso has depreciated slowly this year although it has bounced back in the last few weeks. Today the peso was quoted at 51.26 to the U.S. dollar, down 3.2 percent this year.
       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.

     Bangko Sentral ng Pilipinas (BSP) 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 the inflation environment remains manageable. While inflation has trended higher due mainly to higher utility rates and fuel prices, latest forecasts continue to show the future inflation path staying within the Government’s  3 percent ± 1 percentage point target range for 2018-2019. Inflation expectations also remain anchored close to the midpoint of the inflation target range over the policy horizon.
The balance of risks to the inflation outlook continues to lean toward the upside due to possible higher crude oil prices. The proposed tax reform program of the National Government may exert potential transitory pressures on prices, although various social safety nets and the resulting improvement in output and productivity are also expected to temper the impact on inflation over the medium term. On the other hand, the proposed reform in the rice industry involving the replacement of quantitative restrictions with tariffs and the deregulation of rice imports could temper inflation.
At the same time, geopolitical tensions and lingering uncertainty over macroeconomic policies in advanced economies pose downside risks to near-term prospects for global economic growth.  Nonetheless, the outlook for domestic economic activity remains firm, supported by positive consumer and business sentiment and ample liquidity. Moreover, while credit continues to expand in line with output growth, the Monetary Board remains watchful over evolving liquidity and credit conditions and their implications for price and financial stability.
Based on these considerations, the Monetary Board believes that prevailing monetary policy settings continue to be appropriate. The BSP will continue to monitor price and output developments for any risks to the inflation outlook and will adjust its policy settings as necessary to ensure stable prices and sustainable economic growth."


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