BSP holds off rate adjustments

MANILA, Philippines -  As expected, monetary authorities decided yesterday to keep interest rates steady despite the second rate hike by the US Federal Reserve in three months last week.

Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. said the Monetary Board decided to maintain policy rates at 3.5 percent for the overnight lending facility, three percent for the overnight reverse repurchase facility, and 2.5 percent for the overnight deposit facility.

He added the BSP also left the reserve requirement ratios unchanged at 20 percent.

“The Monetary Board’s decision is based on its assessment that the outlook for inflation remains manageable, consistent with favorable growth prospects,” Tetangco said.

He pointed out inflation expectations remained anchored to the two to four percent target over the policy horizon.

 “The Monetary Board also observed that the balance of risks surrounding the inflation outlook remains tilted toward the upside, given the transitory impact of the proposed tax reform program as well as possible adjustments in transportation fares and electricity rates,” he said.

Economic managers penned a gross domestic product (GDP) growth of between 6.5 and 7.5 percent. The Philippines booked its 72 straight quarters of positive GDP growth despite easing to 6.6 percent in the fourth quarter from the revised seven percent in the third quarter.

The economy grew 6.8 percent last year or in the higher end of the six to seven percent target set by the government.

“The lingering uncertainty over the prospects of the global economy, due in part to possible shifts in macroeconomic policies in advanced economies, continues to pose key downside risk to the inflation outlook,” Tetangco said.

The BSP chief also explained the Monetary Board also noted the beneficial effects on inflation of the removal of the quantitative restrictions on rice importation.

 “The Board emphasized that domestic economic activity is projected to stay firm, supported by buoyant household consumption and private investment, increased government spending, and ample credit and liquidity,” Tetangco said.

 BSP Deputy Governor Diwa Guinigundo said monetary authorities lowered the inflation forecast to 3.4 percent for this year and to three percent for 2018.

 Inflation kicked up to a 27-month high of 3.3 percent in February from 2.7 percent in January due to higher food and oil prices. This brought the average inflation to three percent in the first two months of the year, within the mid point of two to four percent target set by the BSP.

 With the lifting of the QRs, he explained any entity either individuals, corporates, and cooperatives could import rice upon the payment of the 35 percent tariff.

 He said revenue from the tariff on imported rice would be funneled back to the agriculture sector to improve productivity.

 The BSP official said the impact of the imposition of higher excise tax on fuel products expected at P6 per liter under the Comprehensive Tax Reform Program (CTRP) would be minimized as the implementation would be staggered at P3 per liter on the first year, P2 per liter on the second year, and P1 on the third and final year.

 According to him, Guinigundo said there is no need to tighten the country’s policy stance as the domestic economy remains robust.

 “With the robust domestic economy, there is little need for additional monetary support and stimulus at this point,” Guinigundo said.