By CentralBankNews.info
Bangko Sentral Ng Pilipinas (BSP), the central bank of the Philippines, left its benchmark overnight reverse repurchase (RRP) facility rate steady at 4.0 percent and said it would take “a prudent pause” in further changes to monetary policy to allow this year’s easing take effect.
BSP, which has cut its rate three times this year and lowered the reserve requirement for banks, added this decision was supported by a benign outlook for inflation due to the prospects for weak global growth and a firm outlook for the domestic economy.
“Given these considerations, the Monetary Board believes that prevailing monetary policy settings remain appropriate,” the central bank said.
The decision was widely anticipated by investors following last Sunday’s statement by Governor Benjamin Diokno that the central bank had done “more than enough” for the year, referring to a total cut in the key rate of 75 basis points in May, August and September, along with a 100 point cut in the reserve requirement, effective this month.
“A prudent pause in monetary adjustments will enable the cumulative 75-basis-point reduction in policy rates as well as the cut in reserve requirement ratios to continued working their way through the economy,” BSP said today.
Looking ahead, BSP said it would continue to monitor inflation and economic output to ensure its policy stance remains consistent with stable prices while supporting economic growth.
Inflation in the Philippines has trended down in the last 12 months but BSP said the latest forecasts continue to indicate inflation is likely to settle within the lower half of its target range of 3.0 percent, plus/minus 1 percentage point for this year and up to 2021, with the balance of risks on the upside for 2020 and to the downside for 2021.
In October inflation in the Philippines fell to 0.8 percent from 0.9 percent in September, down from a 10-year high of 6.7 percent in October 2018, and in September BSP cut its inflation forecast for this year to an average 2.5 percent from a previous forecast of 2.6 percent.
The potential outbreak of African Swine Fever and potential volatility in oil prices present the main upside risks to inflation while uncertainty over trade policies continue to weigh on global economic activity and demand, dampening the upside risks.
Firm domestic spending and sustained progress in policy reforms should help serve as “a buffer” against external headwinds for the Philippines, BSP said, adding it trusts the fiscal 2020 budget would be passed this year.
The Philippine economy grew 6.2 percent year-on-year in the third quarter, up from 5.5 percent in the second quarter and 5.6 percent in the first quarter.
The Philippine peso has strengthened in the last 12 months and 50.8 to the U.S. dollar today, up 3.5 percent this year.
Bangko Sentral Ng Pilipinas issued the following statement:
“At its meeting on monetary policy today, the Monetary Board decided to maintain the interest rate on the BSP’s overnight reverse repurchase (RRP) facility at 4.0 percent. Accordingly, the interest rates on the overnight deposit and lending facilities were held unchanged at 3.5 percent and 4.5 percent, respectively.
Latest baseline forecasts of the BSP continue to indicate that inflation is likely to settle within the lower half of the target band of 3.0 percent ± 1 percentage point for 2019 up to 2021, with the balance of risks to the inflation outlook leaning toward the upside for 2020 and toward the downside for 2021. Upside risks to inflation over the near term emanate mainly from the potential impact of the African Swine Fever outbreak on food prices and from potential volatility in oil prices amid geopolitical tensions in the Middle East. At the same time, weak global economic prospects continue to temper the inflation outlook, as uncertainty over trade policies weigh down on global economic activity and demand. Meanwhile, inflation expectations based on the BSP’s survey of private sector economists also remain well-anchored within the inflation target range.
Notwithstanding prospects in the global front, firm private domestic spending and sustained progress in policy reforms will serve as a buffer against external headwinds.
Given these considerations, the Monetary Board believes that prevailing monetary policy settings remain appropriate. This is supported by the benign inflation outlook and a firm outlook for domestic economic growth. At the same time, a prudent pause in monetary adjustments will enable the cumulative 75-basis-point reduction in policy rates as well as the cut in reserve requirement ratios to continue working their way through the economy. The Monetary Board also trusts that the fiscal budget for 2020 will be passed within this year.
Going forward, the BSP will continue to monitor emerging price and output conditions to ensure that the monetary policy stance remains consistent with ensuring stable prices while supporting economic growth over the medium term.”
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