BSP maintains interest rates, raises inflation forecast for 2018, 2019

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) maintained its interest rates despite faster than expected inflation in January, but raised its inflation forecast for the next two years.

After its meeting on Thursday, February 8, the BSP Monetary Board announced that it is maintaining the interest rate on the overnight reverse repurchase facility at 3%, while also maintaining the corresponding interest rates on the overnight lending and deposit facilities.

The central bank, however, raised its inflation forecast for 2018 to 4.3% from 3.4% and to 3.5% instead of 3.2% for 2019.

The BSP set an inflation target range of between 2% and 4% for 2018 to 2020.

Thursday's meeting was the first following the announcement that inflation rose to a 3-year high of 4% in January 2017, compared to the 3.3% in December 2016.

The BSP attributed the rise to better enforcement of tax laws on tobacco as well as temporary increases in prices of selected food items, such as fish and vegetables, in what was the first month that the Tax Reform for Acceleration and Inclusion (TRAIN) law was implemented.

But BSP Managing Director Francisco Dakila Jr said the TRAIN law's effects on inflation are temporary.

"It should be emphasized that although the inflation number for 2018 has been adjusted upwards, the supply-side factor is of transitory nature. By March next year, we should be back within the inflation target band," he said in a briefing on Thursday.

Dakila added that mitigating measures such as the Pantawid Pamilyang Pilipino Program (4Ps), close coordination among government agencies in the implementation of the tax reform law, as well as better monitoring of prices should help prevent second-round effects.

"Nevertheless, the Monetary Board observed that the risks to the inflation outlook remain weighted toward the upside owing mainly to price pressures emanating from possible further increases in global oil prices," the BSP said.

"At the same time, the Monetary Board saw that inflation expectations continue to be anchored within the inflation target band over the policy horizon." – Rappler.com