Philippine central bank holds rate on tame CPI and firm GDP outlook

21, Jun. 2019

MANILA, NNA – The Philippine central bank left its key interest rate at 4.5 percent on Thursday, surprising many economists, as it opted to monitor the effects of last month’s cut and the ongoing phased reduction in cash reserves lenders must hold.

Bangko Sentral ng Pilipinas said in a statement prospects for broadly balanced inflation and solid domestic growth would allow the bank to maintain its policy stance “for the time being.”

Many economists had forecast consecutive easing.

Key points:

―― At its one-day policy meeting, the BSP decided to maintain the overnight reverse repurchase facility at 4.5 percent. Last month, the bank lowered the rate by 25 basis points, its first cut in nearly three years, amid slowing global growth and easing consumer prices.

―― The BSP said its policy board “believes that the manageable inflation outlook and firm domestic growth prospects support keeping monetary policy settings steady for the time being.”

―― The bank’s main scenario is that inflation will stay in the official target range of 2 to 4 percent on prospects of slower global growth, but it noted prolonged hot and dry weather patterns would be a “key upside risk” to its inflation outlook.

―― “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,” the bank said.

―― BSP Deputy Governor Diwa Guinigundo told a news conference Thursday: “We don’t know yet how the previous easing of monetary policy will work its way through the rest of financial system... What is prudent is for the monetary board is to take a pause.”

―― He added that the BSP had already taken policy action to preempt a further domestic slowdown in the future amid external uncertainties. The Philippine economy grew at the slowest pace in four years in the January-March quarter, as the delay in budget approval dented some program and infrastructure spending and exports lost steam amid the global slowdown.

Takeaway:

―― Guinigundo noted “there is room for easing monetary policy,” but also stressed the bank would remain data dependent. “Core inflation is still 3.7 percent, which means that the underlying demand pressure is still there,” he said. “We need to be more careful in terms of the timing as well as the pacing of the easing monetary policy.”

―― The bank revised down its inflation forecast for this year to 2.7 percent from 2.9 percent, and to 3 percent from 3.1 percent for 2020, citing a recent slide in crude oil prices and the prospect of a stronger peso this year.