By Lee C. Chipongian
As expected, the Monetary Board of the Bangko Sentral ng Pilipinas (BSP), during its monthly policy meeting yesterday, kept the benchmark rates unchanged at four percent but lowered the inflation forecast for 2019 to 2.4 percent from the previous 2.5 percent.
The 2020 and 2021 inflation estimate were also untouched at 2.9 percent. It is the same forecasts since August 8, giving BSP Governor-in-Charge Francisco G. Dakila Jr. much confidence about the inflation outlook in the next two years.
“(The) Monetary Board believes that prevailing monetary policy settings remain appropriate,” said Dakila. He said the benign inflation outlook and “firm” domestic economic growth outlook allows the BSP to keep rates steady at this time.
Dakila also reiterated that inflation which dropped to 0.8 percent in October and currently averages at 2.6 percent year-to-date, has “likely” bottomed out in October. He expects the rate to “move closer to the mid-target in 2020 and 2021 as baseline effects begins to dissipate” with the tapering off of the impact of the rice tariffication and the acceleration of domestic growth.
BSP Department of Economic Research Director Dennis D. Lapid said that in terms of decision making, their approach is always forward looking. “The Monetary Board decision is focused on 2020 and 2021,” he said.
Dakila, in the meantime, said a “prudent pause in monetary adjustments will enable the cumulative 75-basis-point reduction in policy rates as well as the cut in reserve requirement ratios to continue working their way through the economy. The Monetary Board also trusts that the fiscal budget for 2020 will be passed within this year.”
Inflation upside risks remain the same, primarily the impact of the African Swine Fever on food prices and the potential volatility in oil prices amid geopolitical tensions in the Middle East, said Dakila.
“(The) weak global economic prospects continue to temper the inflation outlook as uncertainty over trade policies weigh down on global economic activity and demand. Meanwhile, inflation expectations based on the BSP’s survey of private sector economists also remain well-anchored within the inflation target range. Notwithstanding prospects in the global front, firm private domestic spending and sustained progress in policy reforms will serve as a buffer against external headwinds,” he added.
The BSP’s overnight reverse repurchase facility remains at four percent while the interest rates on the overnight deposit and lending facilities are at 3.5 percent and 4.5 percent, respectively.