By CentralBankNews.info
The central bank of the Philippines left its benchmark overnight reverse repurchase facility rate (RRP) steady at 3.0 percent but trimmed its outlook for average inflation this year to “slightly below” its target range from June’s statement of “near the lower edge” of its range.
Bangko Sentral ng Pilipinas (BSP) also appeared to be more uncertain about the its future monetary policy stance, saying “increased uncertainty over prospects for growth and monetary policy action in major advanced economies requires prudence in policy settings.”
This statement compares with its previous policy statement from June 23 when it said “continued uncertainty relating to monetary policy prospects in major advanced economies requires a steady hand on policy settings in order to retain flexibility in the period ahead.”
In June the BSP adopted an Interest Rate Corridor to improve the transmission of its policy decisions to financial markets and as part of that shift the RRP was lowered to 3.0 percent from 4.0 percent. The BSP said the shift to a rate corridor and the cut in the RRP did not signify a change in its monetary policy stance and was mainly operational in nature.
In today’s statement, the BSP repeated its description of the inflation environment as “manageable,” with the balance of risks broadly balanced. Upside risks to inflation emanate from adjustments to electricity rates while slower global economic activity remains the key downside risk.
Headline inflation was steady at 1.9 percent in July from June, below the central bank’s target range of 3.0 percent, plus/minus 1 percentage point.
Amidst subdued prospects for global economic growth, the central bank said domestic economic conditions continue to be firm, boosted by solid household consumption and investment, buoyant business and consumer sentiment and adequate credit, with higher fiscal spending to boost demand further.
Gross Domestic Product in the Philippines grew by an annual rate of 6.9 percent in the first quarter of this year, up from 6.5 percent in the previous quarter.
Last month the International Monetary Fund backed a 10-point reform plan by the Philippine government of President Duterte, but said the reforms should go further and include comprehensive tax reform that would raise additional revenue to finance higher productive spending.
The IMF said the government should boost its budget deficit to 3 percent of GDP over the medium term from 1.4 percent in 2015 and a target of 2.0 percent, moves that would boost the country’s baseline, medium-term growth outlook to 7-8 percent from 6-7 percent.
“This additional effort scenario would make the Philippines one of the fastest growing (if not the fastest) economies in the world and help reduce poverty towards the government’s ambitious target,” the IMF said.
Bangko Sentral ng Pilipinas issued the following statement:
