BSP leaves policy rates unchanged



Bangko Sentral ng Pilipinas (BSP) kept rates unchanged on stable inflation expectations and economic growth on Thursday, and how it monitors the impact of recent monetary adjustments.

The Central Bank's Monetary Council (MB) left the interest rate at the 4.5% overnight reversible repurchase facility (PRP), announced after its review on Thursday. Interest rates on overnight loan and deposit facilities were also maintained at five percent and four percent, respectively.

Six of the 10 economists surveyed by Business world earlier this week expected the central bank to burn.

"The Monetary Council believes that the prospects for manageable inflation and strong prospects for domestic growth support the maintenance of a stable monetary policy scenario for the time being," BSP Governor Benjamin E. Diokno said in a statement.

The head of the BSP said that the latest baseline forecasts show that inflation will likely remain within the target of 2-4% for this year and 2020, although the prolonged El Nino phenomenon remains an upside risk.

Inflation accelerated in May, after six consecutive months of slowdown, to 3.2% last month, up from three percent in April, but still slower than the 4.6% in May 2018. Year-to-date, inflation averaged 3.6%. of the BSP target.

Economic growth in the coming months is expected to rebound after the first-quarter slowdown, "supported by a projected rebound in household spending and continued implementation of the government's infrastructure spending program," Diokno said.

Gross domestic product (GDP) grew 5.6% in the first quarter, its worst performance in four years. This was lower than the pace of 6.3% in the previous quarter and 6.5% in the first quarter of 2018, as well as the revised downward target of 6.7% from the government for the year.

"A cautious pause allows the BSP to observe and assess the impact of previous monetary adjustments, including the gradual reduction of reserve requirements to be completed by the end of July," added Diokno.

At its May 9 meeting, MB reduced the top rates by 25 basis points. The BSP also reduced creditor reserve requirement (RRR) indices by an effective percentage point from May 31 to 17 for universal and commercial banks, 7% for savings and 4% for rural and cooperative banks. Reserve rates of major banks and savings lenders will be reduced further to settle at 16% and 6%, respectively, on June 28 and July 29.

BSP Deputy Governor Diwa G. Guinigundo said in the same statement that these RRR reductions should release a total of P200 billion into the financial system once the phased implementation is complete.

The BSP sees inflation slowing further this year and in 2020 due to likely lower world oil prices and the appreciation of the peso.

Guinigundo said the central bank revised its inflation projections to 2.7% from the expected 2.9% for May this year and to 3% from 3.1% by 2020.

"For 2019, we expect the peso to be around P52.01 and for 2020, some appreciation for P51.50," said Guinigundo.

The official said that forecasts were reduced as price increases remain manageable, despite the slight increase in May. Inflation expectations are also "beginning to be better anchored," he said.

"Growth continues to be robust and robust," added Guinigundo, noting that the central bank's easing of policy last month serves as a "buffer" and a "preemptive action" against uncertainties.

"There is room to relax monetary policy because the view on inflation is very optimistic, which will continue to be moderate," Guinigundo said. "But … we need to show and establish the firmness of the downward trend of inflation in the future."

Nicholas Antonio T. Map, senior economist at ING Bank N.V.-Manila's affiliate, said the BSP is probably waiting for more data to assess the economic conditions and the impact of the global trade war on the country.

"The next policy meeting (8 August) coincides with the release of GDP growth in Q2, which should by all indications be an improvement over Q1, with the economy benefiting from the round of political easing ( RRP and RRR). The support also helped drive growth after being left out for most of the year, "said Mr. Map.

Michael L. Ricafort, head of Rizal Commercial Banking Corp.'s economic research division, said policymakers are also awaiting the Federal Reserve's next move after it opened the door for further cuts in the coming months at its meeting. June 18-19.

"Likewise, we expect the RRR cuts to be suspended while the full effect of the plots has not yet been felt," said economist Robert Dan J. Roces of Security Bank Corp. – R. J. Ignacio


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