Price pressures were seen decelerating some more over the near horizon, the pace slow enough as to send the average for the year still lower than target to 1.8 percent, the Bangko Sentral ng Pilipinas (BSP) said on Thursday.
This compares with target range of 2 percent to 4 percent for the year and an indication of how far price pressures have decelerated in an economy looking to expand as much as 7 percent this year in terms of local output or the gross domestic product.
The seven-month inflation has also proven lower than target at only 1.9 percent thus far, a development that, in certain sectors, raised the likelihood of deflation, or the general cut back on prices that is just as bad as high inflation.
This and related developments compelled the seven-man Monetary Board (MB), the policy-making body of the BSP, to keep the policy rates steady at 4 percent for borrowing and 6 percent for lending.
The rates on term RRPs or borrowings, RPs or repurchases and special deposit accounts were also kept steady.
The banks’ reserve requirement ratios were also left unchanged.
BSP Deputy Governor for the Monetary Stability Sector Diwa C. Guinigundo said the latest MB assessment shows inflation likely averaging only 1.8 percent for this year.
In the first seven months of the year, inflation averaged 1.9 percent. This indicates that price pressures were to moderate some more in the next few months.
The BSP attributed the below-target inflation assessment to “favorable supply-side conditions, which are seen as largely transitory.”
This was in recognition of such downside risks, as the El Niño weather disruptions proving more debilitating than anticipated or the price of oil quickly moving back up between now and December.
But the BSP has been able to keep inflation within target the past six years. It is mandated by law to issue a public explanation to Malacañang in the event inflation breaches either the lower or upper end of the target range. An above-target inflation warrants a tightening in monetary policy and the opposite is required to correct a below-target inflation for the year.
Guinigundo told reporters that, while inflation has a large influence on monetary-policy calibration, it is not the sole determinant for the same.
“We believe that this is something that is supply-driven [as the MB said]. This is transitory and, therefore, we don’t have to respond…on something that is driven by favorable supply conditions,” Guinigundo said.
Inflation was seen to go back to the target range in 2016 with an average of 2.5 percent.
The MB also said they favored steady monetary policy as recent global developments required careful monitoring “as these could threaten financial stability.”
“Given these considerations, the Monetary Board believes that prevailing monetary-policy settings remain appropriately calibrated at this time. The BSP will continue to keep a watchful eye on domestic and external conditions to ensure that the monetary-policy stance stays in line with maintaining price and financial stability,” the central bank said.
Guinigundo said the recent volatility in the foreign-exchange market attributed to China’s decision to devalue the yuan was considered in the formulation of monetary policy.
The peso, having earlier fallen to a five-year low, gained back some of its strength on Thursday.
Data from the Philippine Dealing System show the peso, averaging 11 centavos higher to P46.15 per dollar, from the P46.26 the day before. Total traded volume stood at $747.7 million from the $1.12 billion on Wednesday.