Bangko Sentral keeps policy rates steady

By DANESSA O. RIVERA, GMA News

Published February 12, 2015 4:04pm

(Updated 5:34 p.m.) The Monetary Board on Thursday kept the benchmark interest rates unchanged, saying inflation remains in check as oil prices continued to trade weakly in world markets.

At a press briefing after the policy-making body's meeting, Bangko Sentral Governor Amando Tetangco Jr. said policy rates – a benchmark for bank loans – were left untouched at 4 percent for overnight borrowing and 6 percent for overnight lending.

The central bank has kept the rates steady since October 2014 when monetary policy was last tweaked by a 25 basis point increase, citing an upside risk to inflation.

The yields of special deposit accounts (SDA) facility were also kept unchanged at 2.5 percent for all tenors, the governor said.

The reserve requirement for thrift banks was left unchanged at 8 percent and for universal and commercial banks at 20 percent.

The latest policy announcement was in line with the respective positions of analysts polled by GMA News Online.

Monetary authorities found the prevailing monetary policy settings appropriate, according to the central bank chief.

"Latest baseline forecasts show a lower inflation path within the target range of 3 percent, plus-minus 1 percentage point, for both 2015 and 2016, while inflation expectations remain firmly anchored," Tetangco said.

"Inflation pressures have moderated further since the previous monetary policy meeting, reflecting mainly the significant decline in international oil prices," he added.

In its decision to keep rates steady, Tetangco noted the policy-setting body also considered the firm prospects for domestic activity and positive growth dynamics, which is supported by buoyant private demand, sustained bank lending growth, and upbeat business sentiment,

In a phone interview, Security Bank Corp. economist Patrick Ella said the Monetary Board used a very neutral language – indicating status quo on policy moving forward.

BSP cuts inflation forecasts

In fact, Tetangco said the Monetary Board noted that the risks to the baseline inflation forecast remain broadly balanced.

This led to a cut in inflation forecasts for 2015 and 2016.

In the same briefing, BSP Deputy Governor Diwa Guinigundo said the central bank now sees 2015 inflation settling at 2.3 percent from an earlier projection of 3 percent, with the numbers for 2016 at around 2.5 percent from 2.6 percent.

He said the lower forecasts took into account the lower inflation rates in December 2014 and January 2015.

December inflation slowed to 2.7 percent and eased further to 2.4 percent in January.

"We are also seeing lower oil prices bringing down the level of inflation. A stronger peso is also supportive of lower inflation forecast while lower global growth is another factor," Guinigundo said.

Potential price pressures may emanate from pending petitions for adjustments in utility rates and possible power shortages, Tetangco noted.

The cut in inflation projections indicates that the BSP will still maintain rates in the near-term, Security Bank's Ella said.

"Lowering the inflation rate tells me they're already factoring in lower prices biased to lower oil prices," he said.

"It does not give any bias as they are still waiting for the Federal Reserve's decision on March. They are also looking at the near term volatilities especially in Greece," he added. – VS, GMA News

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