MANILA -- The Bangko Sentral ng Pilipinas’ (BSP) policy-making Monetary Board (MB) on Thursday decided to keep key policy rates steady, in apparent expectation of a more manageable inflation environment.
Thus, the overnight reverse repurchase (RRP) rate remains at 4.75 percent and rates of lending and deposit facilities are still the same.
Reading the statement of BSP Governor Nestor A. Espenilla Jr., BSP Deputy Governor Diwa Guinigundo, in a briefing Thursday, said monetary officials forecast inflation to retreat back into the target band of 2-4 percent this and next year.
This forecast was made “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.”
“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 infrastructure program,” he said.
Risks to inflation outlook “remain evenly balanced” this year and further easing is expected next year due to “more uncertain global economic environment.”
Guinigundo said the Board considers current monetary policy settings as appropriate since the impact of the total of 175 basis points increase in the key rates last year continues to work its way through the economy.
“The Monetary Board also emphasized that the BSP remains vigilant against developments that could affect the outlook for inflation and is prepared to take appropriate policy action as necessary to safeguard its price and financial stability objectives,” he said.
Relatively, the Board cut the inflation forecast for this year to 3.07 percent from the earlier 3.18 percent set during the December 13, 2018 meeting.
For 2020, the forecast is now at 2.98 percent from 3.04 percent last December.
BSP Assistant Governor Francisco Dakila, during the same briefing, said “latest inflation outlook continues to point towards decelerating and within target inflation over the policy horizon.”
He explained that the decline in the forecast was primarily due to the drop in Dubai crude oil prices.
He said the Board’s earlier Dubai crude oil assumption for this year is USD69.41 per barrel but is now down to USD61.31 per barrel.
The lower inflation projection was also due to net base effect after the surge of rate of price increases last year on account of supply constraints that pushed prices up and the higher oil prices due to the external factors and excise tax hikes.
“We also incorporated the impact of the rice tariffication bill and likewise the normalization of supply conditions for key food items,” Dakila said.
Dakila said they still expect inflation to settle “below 4 percent in March this year.”
Guinigundo, meanwhile, advised people “not to read too much on that.”
“It may settle below 4 percent but you have to look at year-to-date,” he said.
Domestic inflation has been decelerating after peaking at 6.7 percent in September to October last year.
It declined to 6 percent last November, to 5.1 percent last December and to 4.4 percent last January.
“So far we have a good head start. December was lower than expected. January was again much lower than expected. And these were two very important factors that drove the inflation process to start showing a modest path in 2019,” he added. (PNA)
