Strong domestic demand, low inflation made BSP keep rates steady

By Joann Santiago

MANILA, June 25 (PNA) — The still robust domestic demand along with low inflation environment made the Bangko Sentral ng Pilipinas (BSP) keep rates steady Thursday.

Thus, the overnight borrowing or reverse repurchase (RRP) rate is still at four percent and the overnight lending or repurchase (RP) rate is at six percent. Rate of the central bank’s special deposit account (SDA) facility was also maintained.

“The Monetary Board (MB) noted that domestic demand conditions remain firm despite the lower-than-expected first-quarter output growth, supported by solid private household and capital spending as well as buoyant business confidence,” BSP Governor Amando Tetangco Jr. said in a briefing.

The Board continues to see inflation this and next year to remain within the central bank’s two to four percent target.

The central bank chief said “inflation expectations remain firmly anchored following recent inflation outturns.”

This after the May 2015 domestic inflation declined to its record-low of 1.6 percent from month-ago’s 2.2 percent.

Tetangco said upside risks to inflation include the pending power rate hike petition and the impact on food and utility prices of the expected longer El Nino phenomenon.

He, however, said that slower global economic activity plays as a downside risk to inflation.

He also said that the high liquidity situation along with the planned increase in government spending “are expected to further support domestic economic activity and sustain the economy’s momentum in the month’s ahead.”

With these factors, Tetangco said “the Monetary Board believes that prevailing monetary policy settings remain appropriately calibrated to the outlook for inflation and domestic economic activity.”

“Going forward, the BSP will continue to monitor domestic and external developments to ensure that the monetary policy stance remains in line with maintaining price and financial stability,” he added.

Relatively, BSP Monetary Policy Sub-Sector Managing Director Francisco Dakila Jr., during the same briefing, said other upside factors to inflation are the scheduled increase in jeepney fare in the National Capital Region (NCR) by Php 1 and the Php 10 hike in taxi fare, both in July.

He also noted that domestic consumption remain strong and “still quite respectable” and capital formation is still robust.

And while other central banks have cut policy rates, Dakila said the BSP continues to have leeway to keep rates steady.

He said the expected normalization of US interest rates is not also expected to result to extreme volatility in the Philippines because “we do have ample cushion should there be any volatility in capital or foreign exchange markets.”

“The domestic conditions and external conditions support the maintenance of the monetary policy stance,” he added. (PNA)