The Bangko Sentral ng Pilipinas (BSP) on Thursday delivered a widely expected move of keeping the policy rates, as well as related policy tools, such as the interest on its special deposits and the banks’ deposit reserve ratio, unchanged.
This kept the overnight borrowing, or reverse repurchase rate (RRP), at 4 percent and the overnight lending, or repurchase (RP), at 6 percent for the fourth time in a series.
The interest rate on the special deposits was also kept steady at 2.5 percent and the deposit reserve rate at 20 percent.
The move proved within market expectations, as indicated by an earlier private economists poll by the BusinessMirror. This was also in contrast to the widening trend of monetary-policy easing—or interest rate reductions—seen in other emerging markets and neighbor economies.
The policy-making Monetary Board based its decision on the assessment that the inflation environment continues to be manageable. Its latest baseline forecasts indicate that inflation was likely to settle within the lower half of the target range of 2 percent to 4 percent this year.
BSP Deputy Governor for the Monetary Stability Sector Diwa C. Guinigundo said the central bank’s inflation forecast for the year was scaled back slightly to 2.2 percent from the 2.3 percent forecast on February 12 when the Monetary Board last met to set the rates.
Guinigundo said the slower forecast inflation was scaled back on account of a lower-than-expected wage hike implemented only this month.
About a week ago, the Department of Labor and Employment (DOLE) announced a P15 increase in the daily basic minimum wage. Guinigundo pointed out the BSP assumed a P20 increase in the daily minimum wage much earlier.
According to the BSP, the risks to inflation remained “broadly balanced,” as pending petitions for upward adjustments in the utility rates and possible power shortages offset the downward risks emanating from uneven global economic activity.
For next year, the BSP forecasts inflation hitting 2.5 percent or unchanged from forecast bared on February 12.
The Monetary Board’s rather tame inflation outlook helps fortify the argument against the BSP, following the path of central banks in more than 20 jurisdictions across the world that scaled back interest rates in recent months due to falling inflation and increasingly unsatisfying local output growth.
Guinigundo intimated the BSP was not likely to reverse or “waste” the preemptive tightening moves the Monetary Board set up early in 2014, especially now that inflation has proven benign and the economy barely needs monetary stimulus as output remains robust no matter the global uncertainties.
“Last year we did some preemptive moves in anticipation of developments in the US Fed and the fact that in 2014, there were pressures on prices. To be sure that we keep inflation expectations well-anchored, we decided to go into preemptive moves,” Guinigundo said.
The BSP started its tightening cycle in March 2014, but paused in September the same year. The tightening translated to a 200 basis-point hike in the banks’ deposit reserve ratio, a 50-basis-point hike in the SDA interest rate and 50-basis-point hike in the main overnight policy rates.
“Now for 2015 and 2016, the situation has not changed. The US is still about to tighten—although uncertainty remains as to when and how much. We will not waste those preemptive moves for nothing. At this point, the economy does not need additional monetary stimulus,” Guinigundo said.
The BSP reiterated they will continue to monitor domestic and external developments that going forward has potential impact on prices and on financial stability.