MANILA, Philippines – The Bangko Sentral ng Pilipinas left key policy rates unchanged during its last rate-setting meeting for the year as inflation expectations continued to remain within the target for this year until 2016.
BSP Governor Amando M. Tetangco Jr. said in a briefing yesterday the overnight borrowing and overnight lending rates were kept steady at four percent and six percent, respectively.
The interest rates on the reverse repurchase, repurchase and the special deposit account facility and the reserve requirement ratios were also maintained.
“The Monetary Board’s decision is based on its assessment that the inflation environment continues to be more manageable, with the risks to the inflation outlook remaining broadly balanced over the policy horizon,” Tetangco said.
“Latest baseline forecasts show a lower inflation path for 2014 to 2016 relative to the previous policy meeting, reflecting in large part the subdued outlook for global commodity prices,” he continued.
The policy making Monetary Board now forecasts inflation to average 4.2 percent this year from an October projection of 4.4 percent. The rate next year is also seen settling at an average of just three percent, down from a previous forecast of 3.7 percent, while the 2016 average is now seen at 2.6 percent from 2.8 percent.
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The government has a three- to five-percent target for inflation this year and a two- to four-percent range for 2015 and 2016.
“Output growth moderated in the third quarter of 2014 as agricultural production contracted amid unfavorable weather conditions and as public spending slowed down,” Tetangco said.
“The Monetary Board also noted that while global economic conditions remain challenging, prospects for domestic activity continue to be firm, supported by strong domestic demand, robust bank lending growth, and buoyant business sentiment,” he added.
The BSP earlier raised the key policy rates for a total of 50 basis points to ensure the inflation remains within target over the policy horizon. Upward adjustments on the reserve requirement ratios and the SDA facility were also done to rein in excess liquidity growth.
“On balance, the Monetary Board is of the view that prevailing monetary policy settings remain appropriate given the manageable inflation outlook and favorable domestic growth prospects,” Tetangco said.
“Going forward, the BSP will continue to monitor evolving price and output developments and remains prepared to take appropriate measures as necessary to ensure that the monetary policy stance continues to support an environment characterized by price and financial stability,” he said.