Philippines: No change in policy rates — BSP

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) decided yesterday to leave benchmark rates unchanged but vowed to keep a watchful eye on inflation.

BSP Governor Nestor Espenilla Jr. said in a press conference the Monetary Board kept the interest rate on the central bank’s overnight reverse repurchase facility at three percent as well as the corresponding interest rates on the overnight lending and deposit facilities.

Espenilla said the reserve requirement ratio was also left unchanged at 20 percent.

“The Monetary Board believes that prevailing monetary policy settings continue to be appropriate,” he said.

Espenilla said the board’s decision was based on its assessment that the inflation environment remains manageable and would remain firmly anchored to the midpoints of the BSP’s two to four percent target over the medium term.

He said the balance of risks to the inflation outlook also continued to be on the upside as the proposed tax reform program could exert potential transitory pressures on prices.

However, the BSP chief said various social safety nets as well as resulting improvement in output and productivity are also expected to temper the impact on inflation.

Espenilla said the outlook for domestic economic activity remains firm supported by positive consumer and business sentiment and ample liquidity.

“At the same time, while prospects for global economic growth have stayed broadly upbeat, geopolitical tensions and lingering uncertainty over macroeconomic policies in advanced economies continue to pose downside risks to external demand,” he said.

Espenilla said the Monetary Board would remain watchful over evolving economic growth and liquidity conditions as well as their implications for price and financial stability.

“Looking ahead, the BSP will continue to be vigilant against any risks to the inflation outlook and will adjust its policy settings as needed to ensure stable prices while supporting sustainable economic growth,” he said.

BSP Deputy Governor Diwa Guinigundo said the Monetary Board as retained the inflation forecast for 2017 and 2018 at 3.2 percent but adjusted the 2019 assumption to 3.2 percent instead of 3.1 percent.

He explained the latest forecast was based on the weaker peso, higher oil prices, high liquidity as well as the recent P21 increase for minimum wage earners in the National Capital Region (NCR) starting October.

The US Federal Reserve left interest rates unchanged but signaled it still expects one more rate hike by the end of the year. The US central bank said it would begin to reduce its approximately $4.2 trillion in holdings of US treasury bonds and mortgage-backed securities in October.

Guinigundo said more than 50 percent probability of a rate hike was assigned for a December meeting of the US Fed as it intends to start adjusting its balance sheet.

“If the balance sheet adjustment is the preferred mode by the US Fed it is going to be very, very gradual. So I think the impact on us will also be not that significant,” he said.