By Lee C. Chipongian
The Monetary Board yesterday left key policy rates untouched for the second straight meeting in a row as evidence of slowing inflation rate allowed the Bangko Sentral ng Pilipinas (BSP) more space to pause from increasing them.
The BSP also revised the 2019 inflation forecast downward from 3.2 percent (December 2018 policy meeting) to 3.1 percent. It retained the 2020 estimates at three percent flat. Both forecasts are within the two-four percent inflation target for 2019 and 2020.
BSP Deputy Governor Diwa C. Guinigundo, who read the Monetary Board statement, said they decided to leave the 4.75 percent overnight reverse repurchase untouched because of a more manageable inflation environment but the dynamics of risks have changed compared to previous assessments.
“(The) risks to the inflation outlook are seen to remain evenly balanced for 2019 while leaning toward the downside for 2020 given a more uncertain global economic environment, which in turn could temper potential upward pressures from commodity prices in the coming months,” said Guinigundo.
He said that price pressures continue to “recede due to the decline in international crude oil prices and the normalization of supply conditions for key food items. (Also) inflation expectations have declined further and are now aligned to the inflation target for 2019-2020.”
In the meantime, domestic demand conditions have remained firm, Guinigundo added, “supported by a projected recovery in household spending and the sustained implementation of the government’s infrastructure program.”
Inflation hit lower at 4.4 percent in January from 5.1 percent December 2018.
BSP Assistant Governor Francisco G. Dakila Jr. said the latest inflation outlook point to a decelerating rate further down the year.
Dakila said 2020 inflation estimates remained broadly unchanged although there was a slight decline to 2.98 percent from 3.04 percent, while the 2019 was lowered by 11 basis points to 3.07 percent from 3.18 percent.
Both Guinigundo and Dakila said inflation average will be below four percent by March this year.
Guinigundo said earlier that inflation is expected to sustain its decline from January this year until December, and he sees “low and stable” inflation firmly at the midpoint level of the target or three percent by the third quarter this year.
Guinigundo said the declining inflation – an expected positive outcome in the BSP’s monetary management – has given authorities “more space to review the central bank’s current monetary policy.”
“With modest demand pressures, monetary policy could be slight on the brake,” said Guinigundo. The market would read this as possible inaction on Thursday, the Monetary Board’s first policy meeting for the year.
He has said last week that there will be no quick reversal in monetary policy, both in the policy rate or cuts in banks’ reserve requirement ratio (RRR), that they would need to see an inflation firmly settled within the two-four percent target before considering further actions.