The Bangko Sentral ng Pilipinas (BSP) is ready to deploy monetary tools to cushion the Philippines against the impact of global challenges.
Central bank Governor Amando Tetangco Jr., said monetary authorities all over the world were now working in a more challenging environment, with oil prices continuing to fall and growth prospects softening.
“For the Philippines, these mean more potential financial market volatility in the near term, for which we have tools,” Tetangco told reporters in a text message on Friday.
With this, he said the central bank would continue to monitor developments, including growth prospects in advanced economies and China, and deploy tools as and when appropriate.
He noted issues peculiar to the Philippines, such as the El Niño weather phenomenon that is expected to intensify through the middle of the year, and the upcoming national elections.
“Right now, our forecast for inflation is still a slow move to within target over the policy horizon, indicating the monetary policy stance remains appropriate for now,” Tetangco said.
In 2015, the Monetary Board decided to keep overnight borrowing and lending rates at 4 percent and 6 percent, respectively.
Detailed factors behind the inflation-targeted policy decisions are included in quarterly inflation reports, which is part of the central bank’s transparency initiative.
In its fourth quarter report, the central bank said its decisions were based on the assessment of the dynamics and risks in the inflation environment over the policy horizon.
“The potential impact of the recent monetary policy adjustment in the US on global financial conditions was also considered. The authorities were of the view that amid a benign inflation outlook, domestic growth fundamentals remain intact and are expected to accelerate going forward,” it said.
In the report, the central bank said monetary policy settings remained appropriate in view of the emerging outlook for inflation and demand conditions. Latest baseline forecasts show inflation will return gradually to a target-consistent path over the policy horizon, it said.
“Notwithstanding the below-target inflation for 2015, inflation dynamics are expected to continue to gather momentum in 2016 but should remain manageable given well-contained inflation expectations over the policy horizon,” it said.
Latest baseline inflation forecasts for 2017 also show that annual average inflation is also
likely to settle within the target range, it added.
Nevertheless, the central bank said its review of current price trends suggested continued risks to the inflation outlook.
Pending petitions for power rate adjustments and the impact of the prolonged El Niño dry weather conditions on food prices and utility rates represent the main upside factors.
On the downside, ongoing weakness in the global economy could provide pressure.
“Firm demand-side conditions also support the view that current monetary policy settings are appropriately calibrated. Domestic economic activity remains intact and continues to gain momentum,” the central bank said.
Credit activity and growth in domestic liquidity remains at pace with the overall requirements of the economy, it added.
“Looking ahead, the evolving expectations about the policy settings of major central banks, outlook for financial and economic conditions in China as well as the possibility of a slower global growth are important considerations for the inflation outlook in the succeeding quarters to the extent that they can influence inflation expectations and market sentiment on the domestic front,” the central bank said.