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Philippines: Key rates, inflation forecasts unchanged

Philippine monetary officials maintained key interest rates on Thursday as expected, given a “broadly unchanged” inflation environment.

Consumer price growth forecasts for this year to 2019 were also retained despite upside risks, the Bangko Sentral ng Pilipinas (BSP) announced.

In its final meeting for the year, the policymaking Monetary Board (MB) kept the central bank’s overnight reverse repurchase, overnight lending and overnight deposit rates at 3 percent, 3.5 percent and 2.5 percent, respectively.
Reserve requirement ratios were also kept at 20 percent.

“The Monetary Board’s decision is based on its assessment that the outlook for the inflation environment has been broadly unchanged,” central bank Governor Nestor Espenilla Jr. said in a statement read by Deputy Governor Diwa Guinigundo following the MB meeting.

The 2017, 2018 and 2019 inflation forecasts of 3.2 percent, 3.4 percent and 3.2 percent, respectively, were also maintained even as monetary authorities noted that the overall balance of risks remained tilted towards the upside due to possible crude price hikes.

“The impact of oil prices, even if it hits $60-65 per barrel, will not be enough to offset our inflation forecasts beyond the 2-4 percent target band,” Guinigundo said.

In the statement, Espenilla said that inflation expectations were still firmly anchored to the target over the policy horizon.

While there may be transitory effects from the proposed tax reform program, mitigation measures and the resulting improvement in output and productivity are expected to temper the impact over the medium term.

Proposed rice industry reforms involving the replacement of quantitative restrictions with tariffs and the deregulation of imports could serve to reduce inflation, Espenilla added.

“The Monetary Board also observed that geopolitical tensions and lingering uncertainty over macroeconomic policies in advanced economies continue to pose downside risks to the near-term prospects for global economic growth,” he said.

The Monetary Board emphasized that prospects for domestic economic activity remained firm owing to buoyant consumer and business sentiment and ample liquidity.

As credit continues to expand in line with output growth, Espenilla said that monetary authorities remained watchful over evolving liquidity and credit conditions and their implications on price and financial stability.

“Based on these considerations, the Monetary Board believes that prevailing monetary policy settings should be kept,” he said.

He said the BSP would remain vigilant against any risks to the inflation outlook and would adjust policy settings as needed.

Steady rates seen

Policy rates, London-based research consultancy Capital Economics said, will likely remain on hold throughout 2018.

“We continue to think that the policy rate will remain unchanged at 3 percent over the course of next year,” Asia economist Alex Holmes said.

He noted overheating fears but said that gross domestic product growth was not exceptionally fast given the country’s level of development and was broadly in line with the estimated trend rate.

“Meanwhile, although there are some concerns about the amount of bank lending flowing into the property sector, most new credit is being directed towards productive new investments in infrastructure and manufacturing, which should boost long-run growth prospects,” he said.

Source: http://www.manilatimes.net/key-rates-inflation-forecasts-unchanged/368707/