English
Philippines: Bangko Sentral keeps rates on hold as inflation drops
MANILA, Philippines (Update 2, 5:41 p.m.) — After delivering back-to-back hikes, the Bangko Sentral ng Pilipinas on Thursday kept its key rate unchanged, citing “receding price pressures.”
At its last rate-setting meeting for 2018, the BSP’s Monetary Board kept policy rate at 4.75 percent, as widely expected.
This was the first time in six meetings that the central bank held policy settings steady since it hiked benchmark rates by a cumulative 175 basis points over the last seven months.
“The Monetary Board deemed it prudent for the time being to keep monetary policy settings steady and allow previous monetary responses to continue to work their way through the economy,” the BSP said in a statement.
“The Monetary Board emphasizes that it remains vigilant against developments that could affect the outlook for inflation and financial stability,” it added.
Filipino households reeling from high prices since the beginning of the year finally got their much-awaited reprieve in November, which saw a four-month low inflation rate of 6 percent on the back of slower price increments for food and tumbling oil prices.
In the first 11 months, rising prices averaged 5.2 percent, still above the BSP’s 2-4 percent annual inflation target range set until 2020.
At its Thursday meeting, the BSP also cut its inflation forecasts, with soaring prices now seen averaging 5.2 percent this year from 5.3 percent, 3.18 percent in 2019 from 3.5 percent, and 3.04 percent in 2020 from 3.3 percent.
Monetary authorities likewise expect monthly inflation to return to within the government’s target band “by around the end of the first quarter of 2019,” against their previous projection that inflation will stay above-target in the first half of next year.
“This is also consistent with our past experience with previous supply shock episodes where we would have very sharp increase in inflation and then a few months later you would see a steady deceleration,” BSP Department of Economic Research Director Dennis Lapid told a press conference.
Next move
In a commentary, Alex Holmes, Asia economist at Capital Economics, said the BSP’s decision to pause “marks the end of the tightening cycle.”
“With growth slowing and headwinds building, we think the emphasis will soon turn to support the economy. We now expect the bank to loosen policy around the middle of next year,” Holmes said.
Red hot inflation and surging borrowing costs have already weighed on consumer spending, which has traditionally been the driving force behind growth in the Philippines, and crimped economic expansion to a three-year low of 6 percent in the third quarter.
For his part, BSP Monetary Policy Sub-sector Assistant Governor Francisco Dakila, Jr. said the central bank “remains data-dependent.”
“We’re now a lot more comfortable that 2019 inflation target will be achievable,” Dakila said.
Source: https://www.philstar.com/business/2018/12/13/1876752/bangko-sentral-keeps-rates-hold-inflation-drops#53Ui2womW3CuwS10.99