Philippines holds rates steady, risk to inflation from oil

By www.CentralBankNews.info The Central Bank of the Philippines (BSP) held its policy rates steady, including the benchmark overnight borrowing rate at 3.50 percent, in light of a “benign inflation environment” but added that the balance of risks to the inflation outlook had shifted slightly to the upside due to volatile oil prices from geopolitical tensions in the Middle East.
The BSP, which has held its benchmark rate steady since October 2012, said the latest forecasts still show that the future path of inflation is broadly in line with the central bank’s 2013, 2014 target range of 4.0 percent, plus/minus 1.0 percentage point, and the 2015 range of 3.0 percent, plus/minus 1 percentage point.
Despite the slightly higher risk to inflation from volatile oil prices, the BSP said world economic prospects remain subdued “thus tempering pressures on global commodity prices.”
The central bank’s decision was widely expected after the governor, Amando Tetangco, said earlier today that he saw no urgency to change the policy stance as the inflation outlook remains benign.

The headline inflation rate in the Philippines eased to 2.1 percent in August from July’s 2.5 percent, the lowest since October 2009, and within the BSP’s forecast of 1.9-2.7 percent. The year-to-date inflation rate is at 2.8 percent.

“Domestic economic activity has also been growing at a solid pace, supported by firm demand and buoyant business sentiment,” the BSP said, adding robust lending to the productive sectors in the economy should also help moderate price pressures.

The central bank’s recent adjustments of its Special Deposit Account facility contributed to a rise in domestic liquidity (M3) growth in July.

“As M3 growth rats are expected to decline once these adjustments have been completed, a temporary period of strong M3 growth is not expected to lead to significant inflationary pressure,” the central bank said.

The Philippine economy expanded by 1.4 percent in the second quarter from the first for annual growth of 7.5 percent, slightly down from the first quarter’s 7.7 percent.