Weeks ahead of the June 25 monetary policy meeting of the Monetary Board, the central bank insisted it sees no compelling reason to adjust its key interest rates given the favorable outlook on the Philippine economy and well-anchored expectations for inflation.
The Bangko Sentral ng Pilipinas (BSP) made the statement amid market speculation that the central bank may limit any tightening move or even ease its key rates to help support the economy after the first quarter ended with weaker-than-expected growth of 5.2 percent in gross domestic product (GDP).
“At the moment, our assessment is that there is no compelling reason to shift the stance of monetary policy, with growth still on a positive path and inflation expectations well anchored,” BSP Governor Amando Tetangco Jr. said in a speech on Wednesday at the general membership luncheon meeting of the American Chamber of Commerce of the Philippines.
Since September last year, the BSP has kept the rate for overnight borrowing, or reverse repurchase (RRP) facility at 4 percent, while that for overnight lending or repurchase facility has been steady at 6 percent.
The special deposit account (SDA) rate has also been frozen at 2.50 percent, while the reserve requirement ratio (RRR) for banks still stands at 20 percent.
The Monetary Board is scheduled to meet on June 25 to discuss and review the central bank’s policy stance.
“Surely, the report on the 5.2 percent first-quarter GDP growth came as a surprise to many of us here—is this cause for worry? I would tend to agree with what [Socioeconomic Planning] Secretary [Arsenio] Balisacan said, that it’s too early to abandon our 7 percent to 8 percent growth target. After all this is just one data point,” he said.
Noting the sharp deceleration of growth in the first quarter of 2015, Tetangco pointed out there are also developments that should boost economic performance going forward such as the country’s sufficient liquidity and healthy domestic credit.
Election-related spending should also boost growth, he added.
The BSP governor added that government initiatives to mitigate the effects of El Niño should help the agriculture sector, while the inflow of foreign direct investment associated with the liberalized entry of foreign banks and their corporate investors should boost manufacturing and construction.
The government has also vowed to utilize the fiscal space available to it to ramp up investment in infrastructure, and on the demand side, sustained growth in remittances should support domestic consumption, he said.
“Let’s not forget that despite this surprise to the downside, the reality is, the economy continues on a sound growth path and we remain one of the faster growing jurisdictions in Asia,” he said.
“What is even more noteworthy is that this growth has been happening in a low inflation environment,” he added.
“This year, we are again looking at within-target inflation. With inflation expectations well anchored, and the risks to this forecast broadly balanced, we foresee average inflation at lower than the midpoint of our target range of 2 percent to 4 percent,” he said.
Tetangco was referring to the BSP’s 2.3 percent average headline inflation rate forecast for this year.
Lastly, Tetangco said the BSP will continue to utilize the tools in its expanded toolkit and sharpen its surveillance capacity to ensure that policy rate settings in the country are pre-emptive and calibrated.