Philippines maintains key rates; inflation forecasts within target

By Toni Weeks

San Luis Obispo, Calif., June 25 – The monetary board of the Bangko Sentral ng Pilipinas decided at its meeting on Thursday to maintain its key policy rates at 4% for the overnight borrowing rate and 6% for the overnight lending rate, according to a bank notice.

The interest rates on term reverse repurchase facilities, repurchase facilities and special deposit accounts were also kept steady. The reserve requirement ratios were left unchanged as well.

The monetary board said its decision is based on its assessment that current monetary policy is still appropriate given the within-target inflation forecasts and underlying strength of domestic demand conditions.

Recent baseline forecasts continue to indicate that inflation is likely to settle within the lower half of the target range of 3% plus or minus 1 percentage point for 2015 to 2016, while inflation expectations remain firmly anchored following the recent inflation outturns.

The board also observed that the risks to the inflation outlook continue to be broadly balanced, with upside risks arising from pending petitions for power-rate adjustments and the impact of stronger-than-expected dry weather conditions on food prices and utility rates. Meanwhile, slower global economic activity could pose downside risks to inflation, the notice said.

At the same time, the board noted that domestic demand conditions remain firm despite lower-than-expected first-quarter output growth supported by solid private household and capital spending as well as “buoyant” business confidence. Ample domestic liquidity and planned higher public spending are expected to further support domestic economic activity and sustain the economy’s momentum in the months ahead.

Given these considerations, the board believes that the current monetary policy settings are appropriately calibrated to the inflation and domestic activity, the notice said.

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