BSP freezes rates, raises inflation forecasts

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The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) kept its key interest rates unchanged but adjusted upward its inflation forecasts for 2015 and 2016.

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The BSP now projects inflation for full-year 2015 at 2.3 percent, up from a previous forecast of 2.2 percent. For 2016, it raised its forecast to 2.6 percent from 2.5 percent.

In a press briefing after the meeting on Thursday, BSP Deputy Governor and Officer in Charge (OIC) Diwa Guinigundo explained that the latest baseline forecasts continue to indicate that inflation is likely to settle within the lower half of the 3 percent plus or minus 1 percentage point for both 2015 and 2016.

Guinigundo said the impact of a weak peso and the trending up of oil prices were the important factors for the slightly higher inflation forecast for this year and the next.

“El Niño, in particular, is now expected to extend beyond June or until December 2015. This would impact agriculture, and electricity,” he added.

The Monetary Board said risks to the inflation outlook continues to be broadly balanced, with the upside of such risks emanating from pending petitions for adjustments in utility rates and possible shortages. The downside could hit global growth, even as prospects have become more evenly balanced, it noted.

Policy remains ‘appropriate’
The BSP maintained its key policy stance, with the rate for overnight borrowing, or reverse repurchase (RRP) facility kept at 4 percent and that for overnight lending or repurchase facility at 6 percent.

The special deposit account (SDA) rate was frozen at 2.50 percent, while the reserve requirement ratio (RRR) for banks stays at 20 percent.

“The Monetary Board’s decision is based on its assessment that the current monetary policy settings remain appropriate given a manageable inflation environment,” BSP Governor Amando Tetengco Jr. said.

At the same time, the Monetary Board noted that domestic demand conditions remain robust, owing to solid private demand and buoyant business sentiment.

In the months ahead, ample domestic liquidity and higher public spending are expected to support domestic economic activity and sustain the economy’s momentum.

“Given these considerations, the Monetary Board believes that prevailing monetary policy settings are appropriately calibrated to the outlook for inflation and domestic economic activity. Going forward, the BSP will continue to monitor domestic and external developments to ensure that the monetary policy stance remains in line with maintaining price and financial stability,” Guinigundo said.

No need for stimulus
BPI Vice President and lead economist Emilio Neri Jr., said robust domestic demand and real economic indicators that point to strong first-quarter gross domestic product growth limit the need for stimulus from the BSP.

Given 9.4 percent growth in domestic liquidity in March and 2.2 percent inflation for April, the BSP sees no compelling reason to hike interest rates to mop up liquidity and defend its inflation path.

Nevertheless, the BPI economist still believes that the BSP may opt to unveil a number of macroprudential measures, possibly in key sectors such as real estate.

“Possible details on the announced plans to implement a Term Auction Facility to complement its existing liquidity tools may be revealed in the coming months,” he added.

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