Monetary Board keeps policy rates unchanged

The central bank's policy rates were kept unchanged by the Monetary Board on Thursday, given the country's "manageable inflation dynamics and robust growth conditions."

In its meeting, the policy-setting board decided to maintain the key rates anew at 4.0 percent for overnight borrowing and 6.0 percent for overnight lending.

Interest rates on other forms of lending and special deposit accounts (SDA) were also kept steady. The reserve requirement ratios were also left unchanged.

"Average inflation is projected to settle within the target range of 3.0 percent, plus or minus 1 percentage point, for 2016 to 2017, while inflation expectations remain firmly anchored within the inflation target band over the policy horizon," Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said told reporters in a briefing.

At the same briefing, BSP Deputy Governor Diwa Guinigundo said the inflation forecast for 2016 has been lowered to 2.2 percent from an earlier outlook of 2.4 percent in December.

"There were some slight reductions in the forecast," Guinigundo noted.

The decision was largely driven by the lower oil prices, the recent decrease in jeepney fares, and the January 2016 inflation rates – which were lower than expected.

Inflations risks

Tetangco, who chairs the five-man board, said the risks surrounding the inflation outlook have shifted slightly to the downside.

"Downward pressures on inflation could arise from slower-than-expected global economic activity and potential second-round effects from lower international oil prices," he said.

He noted, however, that the prolonged impact of the El Niño dry weather could push food prices and utility rates higher. There were also pending petitions for power rate adjustments, the central bank chief said.

The inflation outlook for 2017 was kept at 3.2 percent.

"Domestic demand conditions are likely to stay firm, supported by solid household and capital spending, buoyant market sentiment, and adequate domestic liquidity," Tetangco said. – VS, GMA News