The Bangko Sentral ng Pilipinas (BSP) kept its key monetary-policy rates unchanged on Thursday, after its second policy-setting meeting of the year that is closely being monitored by markets.
The monetary authority, however, slightly cut its inflation forecast for the year, despite rising consumer prices in recent months.
The BSP decided to maintain the interest rate on its overnight reverse repurchase facility at 3 percent, with the corresponding interest rates on the overnight lending and deposit facilities also kept steady. “The Monetary Board’s [MB] decision is based on its assessment that the outlook for inflation remains manageable, consistent with favorable growth prospects,” BSP Governor Amando M. Tetangco Jr. said.
“While the average headline inflation for the first two months of 2017 has risen due to the recent increases in food and oil prices, latest baseline forecasts are slightly lower than previous forecasts and within the target range of 3 percent plus/minus percentage point for 2017 to 2018,” he added.
Central Bank Deputy Governor for the Monetary Stability Sector Diwa C. Guinigundo said the BSP revised its inflation outlook to hit 3.4 percent this year, down from a February forecast of 3.5 percent.
The inflation forecast for 2018 was also revised from 3.1 percent to 3 percent.
The BSP said the balance of risks surrounding the inflation outlook remains tilted toward the upside. Affecting factors include the transitory impact of the proposed tax- reform program, as well as possible adjustments in transportation fares and electricity rates.
The MB also noted the “beneficial effects” on inflation of the removal of quantitative restrictions on rice importation.
Rice accounts for 9 percent of the consumer price basket.
Guinigundo said the government’s potential new rules on rice importation will increase government revenue through tariffs, of which new funds will directly be channeled to the agriculture sector.
Higher production in the sector, according to Guinigundo, is positive for domestic inflation.
The board also said domestic activity is projected to stay firm, supported by buoyant household consumption and private investment, increased government spending and ample credit liquidity.
No RRR cut
Guinigundo said a cut in the country’s reserve requirement ratio (RRR) is “not necessarily useful” at the moment.
“In the face of these inflationary pressures building up even from the supply side, it may not be necessarily useful at this point to reduce RRR, and, in the process, infuse more liquidity in the system,” Guinigundo said, adding they need to send a “consistent signal to the market”.