Philippine monetary authorities left the central bank’s policy settings unchanged, announcing after their policy meeting on Thursday that inflation is expected to remain manageable this year and 2018 despite risks tilted toward the upside.
The Monetary Board kept its inflation forecast for 2017 at 3.4 percent, and for 2018 at 3 percent.
The Board also said prospects for the global economy have improved, although risks surrounding its growth pointed downward. Despite the external headwinds, however, the outlook for the domestic economy remains intact, it said in a statement released after the meeting.
The Board decided during the meeting to keep the reverse repurchase (RRP) facility rate at 3 percent.
The corresponding rates for overnight lending and deposit facilities also remain unchanged at 3.5 percent and 2.5 percent, respectively. The reserve requirement ratio was kept steady at 20 percent.
“The Monetary Board’s decision is based on its assessment of manageable inflation,” outgoing BSP Governor Amando Tetangco Jr. told reporters after the board’s penultimate policy meeting before he retires. Deputy Governor Nestor Espenilla takes over the top central bank post on July 1.
Inflation within target
The latest inflation forecasts remain within the target range of 3 percent ± 1 percentage point for 2017 and 2 018, the central bank said.
In his official statement, Tetangco said market expectations remain anchored to the BSP’s inflation target over the policy horizon.
“The Monetary Board also noted that the balance of risks surrounding the [Philippine] inflation outlook continues to be tilted toward the upside, given the transitory impact of the proposed tax reform program, as well as possible further adjustments in transportation fares and electricity rates,” Tetangco added.
The government has a target range of 2 percent to 4 percent for annual inflation.
Prior to reaching its final inflation outlook on Thursday, members of the Monetary Board had considered the rise in March inflation, which initially prompted an upward adjustment to the Board’s inflation forecast.
In the end, however, easing Dubai crude oil prices cancelled out the upward push in overall prices, leading the Board to just keep the inflation forecasts unchanged.
That was explained by BSP Monetary Policy Sub-Sector Managing Director Francisco Dakila Jr. at the press briefing, saying the central bank took into account the uptick in inflation in March and April, which “contributed to the upward adjustment in the inflation forecast.”
“However, during the same period, there was a reduction in oil prices because of the lower outlook for Dubai crude,” Dakila said.
Headline inflation in March rose to a two-year high of 3.4 percent, which remained the same in April.
Dakila pointed out that the Monetary Board’s assumption for Dubai crude for 2017 has been lowered to $51.32 per barrel from the previous assumption of $51.94/ba. For 2018, the monetary authorities assume a $51.03/ba of Dubai c rude oil from $51.55/ba.
“These are market-based assumptions so they can be changed at any time, but the offshoot is that those are the two main factors that influenced the inflation forecast,” he said.
“So what happened was the two factors just balanced each other out so the inflation outlook was maintained and consequently, that was the major basis for the Monetary Board’s decision to hold its policy settings steady,” he explained.
Improved global outlook, local economy buoyant
On the global front, the Board said economic prospects have improved, but risks remain tilted to the downside.
However, Tetangco said, “The Monetary Board emphasized that even amid external headwinds, the outlook for the domestic economic activity remains intact, owing to buoyant household consumption and private investment, increased government spending, ample liquidity and sustained credit growth.
Going forward, he said the BSP will remain vigilant against any risks to the inflation outlook and will adjust its policy settings as needed to ensure that future inflation remains consistent with the medium-term target, while being supportive of sustainable economic growth.