Philippines holds rate steady but sees lower inflation

December 11, 2014

By CentralBankNews.info
    The Philippine central bank maintained its key policy rate at 4.0 percent, as widely expected, but said inflation in 2014-2016 is expected to be lower than it had expected in its October meeting, mainly due to the subdued outlook for global commodity prices.
    But Bangko Sentral ng Pilipinas (BSP), which raised its rate by 25 basis points in September to rein in inflationary expectations, added that it still considers its current policy as “appropriate given the manageable inflation outlook and favorable domestic growth prospects.”
    The inflation rate in the Philippines eased to 3.7 percent in November from 4.3 percent in October while Gross Domestic Product was estimated to have expanded by an annual 5.3 percent in the third quarter, down from 6.4 percent in the second quarter.
    In October the BSP also said the path of inflation in the next two years was lower that its forecasts. The BSP targets inflation of 4.0 percent, plus/minus one percentage point.
    On Nov. 27 BSP Governor Amando Tetangco said in a statement that the current monetary policy conditions would support further economic activity despite the slowdown in growth.
    Economists have said government spending declined by 0.3 percent in the third quarter, noting delays in reconstruction spending following typhoon Yolanda.

     Bangko Sentral ng Pilipinas issued the following statement:

“At its meeting today, the Monetary Board decided to maintain the BSP’s key policy rates at 4.00 percent for the overnight borrowing or reverse repurchase (RRP) facility and 6.00 percent for the overnight lending or repurchase (RP) facility.  The interest rates on term RRPs, RPs and special deposit accounts (SDA) were also kept steady. The reserve requirement ratios were left unchanged as well.

The Monetary Board’s decision is based on its assessment that the inflation environment continues to be more manageable, with the risks to the inflation outlook remaining broadly balanced over the policy horizon.
Latest baseline forecasts show a lower inflation path for 2014-2016 relative to the previous policy meeting, reflecting in large part the subdued outlook for global commodity prices. Inflation expectations are also generally lower and remain aligned to the inflation target.
Meanwhile, output growth moderated in Q3 2014 as agricultural production contracted amid unfavorable weather conditions and as public spending slowed down. The Monetary Board also noted that while global economic conditions remain challenging, prospects for domestic activity continue to be firm, supported by strong domestic demand, robust bank lending growth, and buoyant business sentiment.

On balance, the Monetary Board is of the view that prevailing monetary policy settings remain appropriate given the manageable inflation outlook and favorable domestic growth prospects. Going forward, the BSP will continue to monitor evolving price and output developments and remains prepared to take appropriate measures as necessary to ensure that the monetary policy stance continues to support an environment characterized by price and financial stability. “

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