Philippine central bank keeps policy tools on hold; lowers inflation outlook for 2016, 2017

The Philippine central bank’s monetary board Thursday decided to leave its policy tools on hold in sync with market expectations. The central bank kept the overnight reverse repurchase facility unchanged at 3 percent. It also kept the corresponding interest rates on the overnight lending and deposit facilities on hold.

Today’s decision of BSP is based on the assessment that the inflation scenario continues to be manageable, according to the central bank’s post meeting statement. This year’s inflation projection was revised down by the central bank to 1.8 percent from 2 percent. The inflation outlook for next year was also lowered from 3.1 percent to 2.9 percent, whereas the outlook for 2018 was maintained at 2.6 percent.

According to the central bank’s statement, the overall balance of risks around the inflation outlook is seen to be widely balanced.  There are upside risks from pending petitions for adjustments in electricity rates. Meanwhile, slower global economic activity also continues to be the main downside risk to the inflation outlook.

Also, the central bank’s monetary board said that outlook for global economic growth continues to remain weak. However, it said domestic economic conditions remain strong, underpinned by robust private household consumption and investment, sufficient credit and domestic liquidity and buoyant business and consumer sentiment. Moreover, the central bank forecasts higher fiscal spending to further stimulate domestic demand.

The BSP’s policy statement mentioned that the board believes current monetary policy settings continue to be appropriate. Furthermore, it stated that heightened uncertainty regarding growth and monetary policy prospects in advanced economies need cautious policy settings. According to the statement, the BSP will continue to keep a close watch on emerging price and output conditions to guarantee price and financial stability conducive to sustained economic growth.

The Philippine central bank is likely to continue with its course through 2016 and might tighten policy in the second quarter of 2017, said ANZ in a research note.

“Our outlook for average inflation through the next 12 months is likely to remain within the inflation target range. Our expectation of Fed tightening in December 2016 should presage tighter monetary conditions in the Philippines,” added ANZ.