The Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas, kept the benchmark borrowing rate at 4 percent on Thursday, its last meeting for the year, amid the benign inflation environment.
BSP Governor Benjamin Diokno, who is also the board chairman, said in a news briefing the interest rates on the overnight deposit and lending facilities were also kept unchanged at 3.5 percent and 4.5 percent, respectively.
“The Monetary Board’s decision is based on its assessment of a benign inflation environment. Latest baseline forecasts indicate that the future inflation path remains within the target range of 3.0 ± 1.0 percentage point [2 to 4 percent] in 2020-2021, with well-anchored inflation expectations,” Diokno said.
He said the balance of risks to the inflation outlook continued to lean slightly toward the upside in 2020 and toward the downside in 2021.
“Upside risks to inflation over the near term emanate mainly from potential volatility in international oil prices amid geopolitical tensions in the Middle East as well as from the potential impact of the African Swine Fever outbreak and recent weather disturbances on domestic food prices,” Diokno said.
“However, uncertainty over trade policies in major economies continue to weigh down on global economic activity and demand and could thus mitigate upward pressures on commodity prices,” he said.
He said notwithstanding the weak global growth outlook, prospects for the Philippine economy continued to be robust on the back of firm domestic demand.
“Sustained policy support from increased fiscal spending, as well as improved domestic liquidity conditions owing to recent monetary adjustments, is also expected to support growth in the coming months,” he said.
Diokno said given these considerations, the Monetary Board believed that the within-target inflation outlook and solid prospects for domestic growth supported its decision to keep monetary policy settings steady.
“Going forward, the BSP will continue to monitor developments affecting the inflation outlook and demand conditions to ensure that the monetary policy stance remains consistent with its price and financial stability objectives,” he said.
Inflation in November 2019 accelerated to a three-month high of 1.3 percent from 0.8 percent in October, driven by higher prices of electricity, fuel and selected food items.
The November print was still significantly slower than 6 percent a year ago. This brought the average inflation in the first 11 months to 2.5 percent, within the government’s target range of 2 percent to 4 percent.
ING Bank Manila senior economist Nicholas Mapa said food inflation for the month was flat on the back of improved supply conditions and ample rice supply following the passage of a law that removed quotas on rice imports.
Mapa said with the base effects from last year’s inflation spike fading quickly, the acceleration in inflation would continue going into 2020 and settle at around 3 percent throughout the most part of 2020.