BSP keeps key interest rate on hold

Published March 22, 2018, 12:00 AM

by manilabulletin_admin

By Lee C. Chipongian

The Bangko Sentral ng Pilipinas (BSP) left its overnight reverse repurchase (RRP) rate as is, basing its Monetary Board decision to its latest review that inflation rate for 2018 and 2019 will not breach the target range.

Using the rebased consumer price index (CPI) with 2012 as base year (versus the previous 2006 series), the BSP forecasts inflation of 3.9 percent average for this year and 3.0 percent for 2019. Both rates are within the 2.0 percent to 4.0 percent target range.

“The Monetary Board’s decision is based on its assessment that while recent inflation outturns show an elevated path in 2018, the latest baseline forecasts continue to show inflation remaining within the inflation target in 2018 and moderating further in 2019,” according to BSP Governor Nestor A. Espenilla Jr.

Espenilla said the risks to the inflation outlook is still tilted to the upside because of price pressures from pending petitions for minimum wages and transport fare adjustments. These risks are however weighed down by non-monetary measures that include government transport subsidies, unconditional cash transfers and other “institutional arrangements” that would “help mitigate inflationary impulses” from minimum wages and transport fare hikes. “In addition, the proposed reforms in the rice industry could also help temper price pressures,” he said.

With inflation two-month average at 3.7 percent based on the 2012 CPI series – this is from January’s 3.4 percent and February’s 3.9 percent, Espenilla noted that inflation expectations “have started to rise and will therefore need to be monitored closely in the coming months.”

“It was also observed that economic growth remains solid enough to absorb some policy tightening if warranted,” the BSP chief added. “Given these considerations, the Monetary Board reiterates that it remains watchful against any signs of second-round effects and inflation becoming broader based.”

The BSP’s policy stance “on-hold” decision has been expected by majority of market observers despite the US Federal Reserve’s rate hike. Espenilla has often said that its decision is not tied to Fed actions.

The Fed, under its new chairman Jerome Powell, did what the market anticipated which was to raise its rates to 1.75 percent from 1.5 percent on a steadily improving economy. It is its sixth upward adjustments since it started its policy rate normalization in late 2015.

 
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