BSP keeps policy unchanged despite elevated inflation path

The Bangko Sentral ng Pilipinas decided to keep policy rates unchanged on Thursday, even though inflation is expected to take an “elevated” path the rest of the year.

During its policy meeting, the Monetary Board retained the overnight lending rate at 3.5 percent, the overnight repurchase rate at 3.0 percent, and the overnight deposit rate at 2.5 percent.

The reserve requirement ratio—said to be among highest in Asia and the world—was left unchanged at 19 percent.

“The Monetary Board’s decision is based on its assessment that while recent inflation outturns show an elevated path in 2018, the latest baseline forecasts continue to show inflation within the inflation target in 2018 and moderating further in 2019,” BSP Governor Nestor Espenilla Jr. said in a press briefing in Manila.

The Monetary Board is the central bank’s policy-setting body.

“At the same time, the Monetary Board observed that the risks to the inflation outlook remain weighted toward the upside owing mainly to price pressures emanating from pending petitions for adjustments in minimum wages and transportation fees,” he said.

The board now expects inflation to settle at 3.9 percent this year, using 2012 as base year,” said Deputy Governor Diwa Guinigundo.

This compares with a previous forecast of 3.8 percent.

“This came from higher food prices, the end of harvest season ... The depreciation of the peso also contributed to the higher estimate for inflation,” he said.

The board lowered its 2019 inflation outlook to 3.0 percent from an earlier forecast of 3.1 percent.

"The reasons driving such a decline in inflation by 2019 are ... the decline in petroleum prices as well as the slight decline in the domestic activity from 2018 to 2019,” Guinigundo noted.

Espenilla, however, said the board is prepared to tighten policy if warranted by domestic conditions.

“The Monetary Board stands firm in its intent to take immediate and appropriate measures to ensure that the monetary policy stance continues to support the BSP’s price and financial stability objectives,” he said.

The US Federal Reserve decided to raise its policy rate during a two-day meeting on March 20 to 21.

“What drives our monetary policy situation is really our assessment of domestic conditions,” Espenilla said. —VDS, GMA News