BSP keeps rates steady

MANILA, Philippines - The Bangko Sentral ng Pilipinas decided yesterday to keep its policy rates steady, citing well-anchored inflation outlook and expectations.

The policy-making Monetary Board decided to maintain the overnight borrowing and lending rates at 3.5 percent and 5.5 percent, respectively.

Moreover, interest rates on special deposit accounts and the reserve requirement ratios were also left unchanged.

“The Monetary Board’s decision is based on its assessment of a benign inflation environment. Latest baseline forecasts indicate that the future inflation path remains in line with the target range of (three to five percent) in 2013 to 2014 and (two to four percent) for 2015,” BSP Governor Amando M. Tetangco Jr. said in a briefing.

“Inflation expectations also continue to be firmly anchored. The Monetary Board noted that while global economic conditions remain challenging, prospects for domestic activity remain robust, supported by buoyant domestic demand and favorable consumer and business sentiment,” Tetangco added.

Inflation averaged 2.8 percent in the first nine months of the year, below the central bank’s target range of three to five percent.

The Monetary Board yesterday also maintained its full-year inflation forecast at three percent, while hiking its 2014 projection to four percent from 3.9 percent. It has, meanwhile, downgraded its 2015 inflation forecast to 3.4 percent from 3.5 percent.

The new figures are still well-within the BSP’s target of three to five percent for this year and the next, and a range of two to four percent for 2015.

“The assessment of risks to the inflation outlook remains unchanged. With the bulk of lending going to the productive sectors of the economy, the improvement in the economy’s absorptive capacity is expected to be sustained, helping to moderate price pressures,” Tetangco said.

The economy expanded by 7.7 percent in the second quarter, making one of Asia’s fastest. This brought first half growth to 7.6 percent, which is already above the government’s six to sevenpercent target.

Tetangco further said the central bank will continue to keep an eye on domestic prices and factors that will affect them as the BSP ensures this is supportive of sustaining economic gains.

“Going forward, the BSP will continue to monitor emerging price and output conditions to ensure that monetary policy remains consistent with price stability while being supportive of economic growth,” Tetangco said.

The overnight borrowing and lending rates have been kept steady since the start of the year. The Monetary Board last tweaked policy rates on October 25 last year, during which it cut rates by 25 basis points.