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In prudent move, BSP keeps interest rates unchanged

In prudent move, BSP keeps interest rates unchanged

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) adopted a prudent pause by keeping interest rates steady to allow previous monetary actions to work their way into the economy.

In a press conference, BSP Governor Benjamin Diokno said the BSP decided to keep the overnight reverse repurchase rate unchanged at 4.5 percent.

The interest rates on the overnight deposit and lending facilities were likewise kept at 4.25 percent and 4.75 percent, respectively.

“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,” Diokno said.

The BSP chief said latest baseline forecasts indicate inflation expectations have moderated further and that inflation remains likely to settle within the target range of two to four percent for both 2019 and 2020.

Inflation averaged 3.6 percent in the first five months despite the slight uptick to 3.2 percent in May from three percent in April.

According to Diokno, the Monetary Board observed that the risks to the inflation outlook are broadly balanced for 2019 and 2020.

“Weaker global economic prospects amid a possible easing in global demand and increased trade tensions continue to temper the inflation outlook. The potential adverse effects of a prolonged El Niño episode remain a key upside risk to inflation,” Diokno said.

The BSP chief said the Monetary Board believes that the manageable inflation outlook and firm domestic growth prospects support keeping monetary policy settings steady for the time being.

 “The Monetary Board also noted that while real sector activity moderated in the first quarter of the year, overall domestic economic activity is likely to remain firm, supported by a projected recovery in household spending and the continued implementation of the government’s infrastructure spending program,” Diokno said.

For his part, BSP Deputy Governor Diwa Guinigundo said in his last monetary press briefing as he is due to retire early July, the central bank also lowered its inflation forecasts to 2.7 from 2.9 percent and to three percent instead of 3.1 percent for next year.

Guinigundo said the adjustment was due to lower global oil price assumptions, stronger peso, slower GDP growth, cheaper Meralco rates, and lower actual inflation for May.

Guinigundo said the BSP now expects a lower global oil price of $64.56 per barrel for this year and $61.35 per barrel for 2020.

Likewise, Guinigundo said the central bank now expects a stronger peso at 52.01 to $1 instead of 52.06 to $1 for this year and 51.50 to $1 instead of 51.78 to $1 for next year.

Guinigundo also cited the lower prices due to the implementation of the Rice Tariffication law as well as signing of Executive Order 82 by President Duterte reverting the tariff on mechanically deboned meat to five percent.

Guinigundo said the BSP governor had made it clear monetary authorities have enough elbow room to further slash interest rates due to easing inflation as well as slower-than-expected GDP growth caused by the budget impasse.