Low inflation forecast lets BSP keep key rates unchanged

With latest baseline forecasts showing inflation likely settling “near the lower half of the 3- to 5-percent target range” this year and next, the policy-setting Monetary Board of the Bangko Sentral ng Pilipinas opted to keep the overnight borrowing rate at 4 percent and overnight lending rate at 6 percent.   BSP Gov. Amando Tetangco Jr said after Thursday's  policy meeting  that “while global economic conditions remain fragile, prospects for overall domestic economic activity are gradually strengthening.”   These statements of the BSP chief come at the heels of a new Pulse Asia survey showing that the Aquino administration "flunked" in controlling inflation by getting a disapproval rating of 40 percent–possibly indicating that the public is unaware that inflation has been in the low single-digit for many months now.   From 5.2 percent in October last year, inflation fell to 2.6 in March, the National Statistics Office said on its website.   Tetangco said the decision to keep BSP policy rates steady is a “prudent pause” to enable economic policymakers “to better assess how the upside and downside risks to inflation will play out.”   He also said the effects of the half-a-percent or 50-basis-point cut in policy rates early this year “continues to work (their) way through the economy.”   A reduction in interest rates holds various lag effects, and low interest rates make credit more affordable and foster increased loan demand.   Interest rate cuts also make shares of stock, bonds and other securities more attractive as investment options.   Less costly loans also enable merchants and producers to keep their selling prices steady.   The BSP chief said elevated world crude oil prices are the slightly upside risk to inflation and have potential “pass-through” impact on prices of goods and services.   “The BSP will continue to pay close attention to the outlook for inflation and growth to ensure that monetary policy settings remain consistent with price stability while being supportive of non-inflationary economic growth,” Tetangco assured. —ELR/VS, GMA News