UPDATE: BSP keeps rates steady; trims inflation 2015 forecast to 2.2%

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The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) decided to hold its key interest rates steady but revised downward its inflation forecast for 2015.

The BSP now projects inflation for full-year 2015 at 2.2 percent, down from a previous forecast of 2.3 percent. For 2016, it retained the forecast at 2.5 percent.

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

Guinigundo added that the forecasts also supported by well-anchored inflation expectations, which remain within target band over the policy horizon.


He said that the central bank also considered the P15 upward adjustment for the minimum wage in Metro Manila in its inflation forecast for 2015 and 2016.

The risks to the inflation outlook continue to be broadly balanced, with upside risks emanating from pending petitions for adjustments in utility rates and possible shortages, he noted.

“Meanwhile, global economic activity has turned slightly more positive but continues to be uneven, which could further mitigate upward pressures on commodity prices,” Gunigundo added.

For its key policy stance, the BSP kept the rate for overnight borrowing, or reverse repurchase (RRP) facility at 4 percent, while that for overnight lending or repurchase facility stays at 6 percent.

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

“The Monetary Board’s decision is based on its assessment that the inflation environment continue to be manageable,” Guinigundo said.

The BSP official said that at the same time, the Monetary Board observed that domestic demand conditions remains robust, owing to solid priavte demand, adequate doemstic liquidity, and buoyant business sentiment.

Higher public spending is also expected to support economic activity, he added.

“Given these considerations, the Monetary Board is of the view that current monetary policy settings remains appropriate. Going forward, the BSP will continue to monitor domestic and external developments affecting the inflation outlook to ensure that the monetary policy stance remains consistent with its price and financial stability objectives,” Guinigundo said.

Trihn Nguyen, economist at banking giant HSBC, agreed with the central bank’s view on the economy and the inflation environment.

The HSBC economist noted that the Philippine economic growth remains solid while inflation is well within the BSP’s 2 percent to 4 percent target range.

“More fundamentally, the banking system is awash with liquidity, giving little impetus for the BSP to move to support the economy,” she said.

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