The Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas, kept the benchmark interest rates steady Thursday on the back of a stabilizing inflation environment.
Bangko Sentral Deputy Governor Diwa Guinigundo said in a news briefing after the Monetary Board meeting the overnight borrowing rate was kept unchanged at 4.75 percent. The interest rates on overnight lending and deposit facilities were also maintained.
“The Monetary Board’s decision is based on its assessment of a more manageable inflation environment. Latest baseline forecasts show inflation settling within the target band of 2 to 4 percent for 2019 to 2020, as price pressures continue to recede due to the decline in international crude oil prices and the normalization of supply conditions for key food items,” Guinigundo said, while reading the statement of Governor Nestor Espenilla Jr., the board chairman, who was on an extended medical leave.
Inflation in January 2019 slowed to a 10-month low of 4.4 percent from 5.1 percent in December.
Guinigundo said inflation expectations also declined further and were now aligned to the inflation target for 2019 to 2020.
“At the same time, domestic demand conditions have remained firm, supported by a projected recovery in household spending and the sustained implementation of the government’s infrastructure projects,” he said.
Guinigundo said that as a result, the board reduced the inflation forecasts for 2019 and 2020. For 2019, inflation forecast was reduced to 3.07 percent from the 3.18-percent estimate made during the Dec. 13, 2018 meeting.
The 2020 forecast was also cut to 2.98 percent from the Dec. 13 assumption of 3.04 percent.
“Meanwhile, the risks to the inflation outlook are seen to remain evenly balanced for 2019 while leaning toward the downside for 2020 given a more uncertain global economic environment, which in turn could temper potential upward pressures from commodity prices in the coming months,” he said.
He said the board deemed the prevailing monetary policy settings to be appropriate, as previous monetary responses continued to work their way through the economy.
Guinigundo said the BSP remained vigilant against developments that could affect the outlook for inflation and prepared to take appropriate policy action as needed to safeguard its price and financial stability objectives.
Nicholas Mapa, senior economist of ING Bank Manila, said now that the inflation threat appeared safely in the rearview mirror, “we can see the central bank easing off the brake pedal ever so slightly by cutting rates in May after reducing RRR [reserve requirements] in the first quarter.”
“With growth expected to teeter close to the edge of 6 percent given the recent budget delay and with the inflation objective safeguarded, perhaps BSP may finally opt to give the economy an added boost to regain flagging growth momentum,” Mapa said.