BSP keeps rates unchanged as inflation slows

The Bangko Sentral ng Pilipinas’ (BSP) Monetary Board (MB) decided to keep key interest rates unchanged on Thursday, as inflation is now expected to settle at a slower rate for this year and the next.

BSP Governor Benjamin Diokno said the board decided to keep rates at their current levels—overnight borrowing at 4.5%, overnight lending at 5.0%, and the overnight deposit rate at 4.0%.

“Latest baseline forecasts indicate that inflation remains likely to settle within the target range of 3.0% ± 1.0 percentage point for both 2019 and 2020, while inflation expectations have moderated further,” he told reporters in a press conference in Manila City.

“At the same time, the Monetary Board observed that the risks to the inflation outlook are broadly balanced for 2019 and 2020.”

In the same press conference, BSP Deputy Governor Diwa Guinigundo said the MB on Thursday revised its inflation outlook for 2019 and 2020.

This 2019, the BSP expects inflation at a slower rate of 2.7% from an earlier forecast of 2.9%. It also changed its 2020 outlook to 3.0% from an earlier projection 3.1%.

“The first reason is the decline in global oil prices,” Guinigundo said, as the MB now expects prices to average $64.56 per barrel this year versus an earlier forecast of $68.90.

In 2020, the MB expects prices oil prices to average $61.35, lower than its previous forecast of $67.10.

“The second reason behind the reduction in the forecasts for 2019 and 2020 is the appreciation of the peso,” Guinigundo n noted.

For 2019, the peso is expected to average at P52.01:$1 (from $52.06), and at P51.50:$1 (from P51.78:$1).

“On balance, therefore, the Monetary Board believes that the manageable inflation outlook and firm domestic growth prospects support keeping monetary policy settings steady for the time being,” said Diokno.

“A prudent pause allows the BSP to observe and assess the impact of prior monetary adjustments, including the phased reduction in the reserve requirements to be completed by the end of July,” he added.

To raise liquidity in the financial system, the Monetary Board on May 16 reduced the reserve requirement ratio (RRR) of universal and commercial banks by 200 basis points to 16%—to be implemented in three stages from May to July.

A week later on May 23, it cut the RRR of mid-sized banks to 6% from the current 8%—to be executed also in three stages from May to July.

The MB decided to cut interest rates in May, the first time in over six years, citing a “manageable” inflation outlook over the policy horizon.

Guinigundo said there is still room to ease rates, but the question is timing and pacing.

“There is room for easing monetary policy, because our view on inflation is quite optimistic that it will continue to be moderate,” he said.

“We need to be careful of the timing as well as the pacing of easing monetary policy,” Guinigundo added.—VDS, GMA News