The Bangko Sentral ng Pilipinas (BSP) on Thursday said the continued freezing of interest rates by the US Federal Reserve (the Fed) was in line with expectations and will form part of a matrix of events for evaluation when the policy-setting Monetary Board lays down its own assessment when they meet and set policy next week.
The US Federal Open Market Committee (FOMC) kept its policy settings frozen where they are, citing optimism on the growth of the world’s largest economy.
“As expected, the Fed kept rates on hold. Its relatively positive outlook on the US econ suggested it is on track with policy tightening this year. This is roughly consistent with what we have incorporated in our baseline scenario,” BSP Governor Amando M. Tetangco Jr. told reporters.
At their first meeting since US President Donald J. Trump took office, the Fed decided to keep the target range for the federal funds rate at 0.5 to 0.75 percent.
The Fed further said US monetary policy remains accommodative and supportive of further strengthening in labor market conditions and a return to 2-percent target inflation.
“We will note this development at our policy meeting next week, as well as the inflation outlook over the policy horizon,” he added.
The BSP is scheduled to hold its own interest rate-setting meeting for the first time this year on February 9.
At its last rate-setting meeting, the BSP kept its policy rates frozen on the basis of sufficient policy space to weigh the potential impact of a number of economic developments in the horizon.
This means the BSP’s overnight reverse repurchase rate will remain at 3 percent, while the corresponding interest rates on overnight lending and on deposit facilities, as well as the banks’ deposit reserve ratios, were left unchanged.
The BSP has kept the monetary-policy settings frozen since October 2014, with only operational changes made earlier this year to help facilitate the transition to the new policy framework called the interest rate corridor.
Tetangco further said the continued freezing of policy rates was based on steady inflation dynamics and risks.
“Latest baseline forecasts indicate that average inflation would likely settle below the target range of 3 percent, plus or minus 1 percentage point for 2016.
However, inflation is seen to return gradually to a path consistent with the inflation target in 2017 and 2018 due to higher oil prices and strong domestic economic activity,” Tetangco
said.