Monetary Board holds off from raising interest rates

May 12, 2017 - 12:50 PM
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BSP governor Amando Tetangco Jr. (Reuters file)

MANILA, Philippines — The Monetary Board kept policy rates steady on Thursday with officials saying that inflation largely remained manageable.

“Latest baseline forecasts continue to be within the target range of 2-4 percent for 2017-2018,” Bangko Sentral ng Pilipinas governor Amando Tetangco Jr. said. “Market expectations likewise remain anchored to the inflation target over the policy horizon.”

Nevertheless, Tetangco noted that price pressures are rising given planned tax hikes and possible power and fare adjustments.

“At the same time, the Monetary Board observed that inflation has remained elevated due largely to the recent increases in food prices and underlying inflation pressures,” he said. “The Monetary Board also noted that the balance of risks surrounding the inflation outlook continues to be tilted toward the upside, given the transitory impact of the proposed tax reform program as well as possible further adjustments in transportation fares and electricity rates.”

Despite the rising price pressures, the Monetary Board has kept the inflation forecast for this year at 3.4 percent and at 3 percent for 2018.

BSP managing director Francisco Dakila Jr. said while inflation hit 3.4 percent in March and April, lower crude outlooks were tempering expectation.

DUBAI CRUDE OUTLOOK:

2017: from $51.94/barrel to $51.32/barrel

2018: from $51.55/barrel to $51.03/barrel

“The offshoot is that the two main factors that influence the forecast … just balanced each other out so the inflation outlook was maintained,” he said.

Dakila added that the Monetary Board had factored in the inflationary impact of the government tax reform plans moving in Congress.

“But it needs to be emphasized that the assessment is that the inflation target is in no way in danger,” he said. “Even though there might be short term implications of the tax program, it will not cause a breach in the inflation target band and over the long term the tax reform program is expected to be beneficial to the economy.”

Echoing the latest outlook of the International Monetary Fund, the monetary officials noted that global economic prospects were improving even as risks remain tilted toward the downside.

Amid external headwinds they said the domestic outlook remained intact given such factors as robust consumption, private investment and increased government spending.