The Monetary Board, the policy-making body of Bangko Sentral ng Pilipinas, on Thursday kept the benchmark policy rates steady at 4.5 percent, taking into account the benign inflation environment.
BSP Governor Benjamin Diokno said in a briefing following the board meeting the interest rates on the overnight lending and deposit facilities were also maintained.
“Latest baseline forecasts indicate that inflation remains likely to settle within the target range of 2 to 4 percent both for 2029 and 2020, while inflation expectations have further moderated,” Diokno said.
He said the board noted that while real sector activity moderated in the first quarter, overall domestic economic activity was likely to remain firm, backed by a projected recovery in household spending and the continued implementation of the government’s infrastructure spending program.
“A prudent pause allows the BSP to observe and assess the impact of prior monetary adjustments including the phased reduction in the reserve requirements to be completed by the end of July,” Diokno said.
With the manageable inflation environment, the board cut the 2019 inflation forecast to 2.7 percent from the previous assumption of 2.9 percent during the May 9 meeting. The forecast for 2020 was also trimmed to 3 percent from 3.1 percent.
BSP Deputy Governor Diwa Guinigundo cited some reasons for the lowering of inflation forecasts for this year and 2020. These are lower oil prices, the appreciation of the peso and the actual inflation in May 2019.
He said global oil prices were now seen at $64.56 per barrel for 2019 from $68.90 per barrel during the May 9 meeting, and $61.35 per barrel from $67.10 per barrel for 2020.
The board now sees the peso closing the year at 52.01 per dollar and 51.50 in 2020. These are stronger than the 52.06 and 51.78 assumptions, respectively, made in the May 9 meeting.
The peso further strengthened to 51.645 per dollar Thursday, up P0.24 stronger from 51.89 on Wednesday.
Guinigundo also said the board considered the benign inflation in the first five months, which averaged at 3.6 percent, well within the target range of 2 to 4 percent.
From the external front, Guinigundo said the board considered the latest move of the US Fed of maintaining its policy rates steady.
ING Bank Manila senior economist Nicholas Mapa last week said the board would pause at the June meeting to await further confirmation that inflation would return to its downward path.
Monetary Board member Felipe Medalla earlier said he was expecting the BSP to maintain the benchmark policy rates of 4.5 percent in the “next two meetings,” taking into account the benign inflation environment. He said indicators on inflation “remained stable.”
The board on May 9 cut the policy rates by 25 basis points to 4.5 percent, the first time in more than six years, as inflation continued on downward trajectory.