BSP keeps interest rates steady, cuts inflation forecast

The Monetary Board, the policy-making body of Bangko Sentral ng Pilipinas, on Thursday kept key policy rates unchanged for the eighth time since October last year, as inflation rate continued to fall within target.

Bangko Sentral Governor Amando Tetangco Jr. said in a news briefing the benchmark interests were kept at 4 percent for overnight borrowing and 6 percent for overnight lending. 

“The Monetary Board’s decision is based on its assessment of the dynamics and risks in the inflation environment over the policy horizon. While latest baseline forecasts show that inflation could fall below the inflation target range of 2 to 4 percent for 2015 due to the successive low inflation out-turns in recent months, inflation is projected to return gradually to a path consistent with the inflation target for 2016 to 2017,” Tetangco said.

“The Monetary Board is of the view that domestic demand conditions remain firm, supported by buoyant business and consumer sentiment and ample domestic liquidity,” he said.

Tetangco said the benign inflation outlook and the economy’s underlying growth momentum provided ample room to keep monetary policy settings unchanged at this time.

 “Meanwhile, inflation expectations also remain anchored within the inflation target band over the policy horizon,” he said.

Inflation forecast for 2015 was reduced to 1.6 percent from the previous estimate of 1.8 percent,

after the actual figure fell to a record low of 0.6 percent in August.  The forecast for 2016 was slightly adjusted upwards to 2.6 percent from 2.5 percent, amid the threat of El Niño dry spell.  The forecast for 2017 was also increased to 3 percent from the previous assumption of 2.6 percent.

Tetangco said upside risks could come from the impact of stronger and protracted El Niño dry weather conditions on food prices and utility rates as well as pending petitions for power rate adjustments.

Bangko Sentral Deputy Governor Diwa Guinigundo said the higher inflation forecast for 2016 and 2017 was triggered by the expected lingering effects of El Niño, which could persist until June 2016.

 “Any additional risks from El Nino will affect the balance of risks,” Guinigundo said.

Inflation in the first eight months averaged 1.7 percent, well below the 2015 target range of 2 to 4 percent.

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