UPDATE: BSP keeps key policy rates

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(Updates with official, private analyst comments; additional details)

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The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) decided to keep its key interest rates unchanged at the policy meeting on Thursday, seeing inflation largely stable amid global risks.

“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,” BSP Governor Amando Tetangco Jr. said in a statement.

The rate for the overnight borrowing, or reverse repurchase (RRP) facility, stays at 4 percent and the rate for overnight lending, or repurchase facility remains at 6 percent.

The special deposit account (SDA) also remains at the current rate of 2.50 percent, as is the reserve requirement ratio (RRR) for banks at 21 percent.

Lower inflation path for 2014-2016

Tetangco said the latest forecasts show easing pressures on commodity prices.

“Latest baseline forecasts show a lower inflation path for 2014-2016 relative to the previous policy meeting, reflecting in large part the subdued outlook for global commodity prices. Inflation expectations are also generally lower and remain aligned to the inflation target,” he said.

The central bank also trimmed its inflation forecast for full-year 2014 to 4.2 percent from the previous forecast of 4.4 percent. For 2015, the forecast was also adjusted downward to 3 percent from 3.7 percent. For 2016, it was adjusted to 2.6 percent from the previous 2.8 percent.

Meanwhile, the BSP governor noted that output growth moderated in the third quarter of 2014 as agricultural production contracted amid unfavorable weather conditions and as public spending slowed.

“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 said.

Tetangco said the Monetary Board believes that prevailing monetary policy settings remain appropriate given the manageable inflation outlook and favorable domestic growth prospects.

Going forward, he said the central bank 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.

In line with consensus

An analyst from UK-based investment bank Barclays said the BSP’s latest decision was in line with the bank’s forecast and the consensus view.

Rahul Bajoria, economist at Barclays, said the central bank is also turning neutral on its assessment of monetary conditions amid easing inflation and sluggish growth.

“Post the meeting, Governor Tetangco indicated that the inflation path will be tempered due to lower commodity prices. He also indicated that the global conditions remain challenging,” he said.

“We view the tone of the BSP’s latest commentary as neutral, marking a continuation from the meeting in October,” he added.

Bajoria noted that with a lower inflation profile and stable growth momentum, the BSP appears unlikely to further tighten monetary conditions, especially given the recent weak growth prints.

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