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Philippines holds rate, risks to inflation now to upside

Thursday, September 22, 2016 2:26
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(Before It's News)

   The central bank of the Philippines left its benchmark overnight reverse repurchase rate (RRP) unchanged at 3.0 percent, as expected, and repeated that “increased uncertainty over prospects for growth and monetary policy action in major advanced economies warrants prudence in policy settings.”
    Bangko Sentral ng Pilipinas (BSP), which lowered its RRP rate by 100 basis points in June as part of shift to an interest rate corridor system, added that the balance of risks surrounding the inflation outlook “appears to be tilted to the upside” from pending petitions to changes in electricity rates along with proposed change in taxes on petroleum products.
    In its August statement, the BSP described the balance of risks to inflation as “broadly balanced.”
    As in August, the central bank described the inflation environment as “manageable,” with inflation seen slightly below the range of 3.0 percent, plus/minus 1 percentage points this year before rising toward the mid-point of its target range in 2017 and 2018.
     The BSP currently forecasts average inflation of 1.8 percent for this year, 2.9 percent for 2017 and 2.6 percent for 2018.

     Bangko Sentral ng Pilipinas issued the following statement:

“At its meeting today, the Monetary Board decided to maintain the interest rate on the BSP’s overnight reverse repurchase (RRP) facility at 3.0 percent. The corresponding interest rates on the overnight lending and deposit facilities were also kept steady. The reserve requirement ratios were likewise left unchanged. 
The Monetary Board’s decision is based on its assessment that the inflation environment remains manageable. Latest forecasts continue to indicate that average inflation is likely to settle slightly below the 3.0 percent ± 1.0 
percentage point target range in 2016 and rise toward the mid-point of the target range in 2017 and 2018. The Monetary Board observed that inflation is still being driven mainly by supply-side factors. Nevertheless, inflation expectations remain broadly in line with the inflation target over the policy horizon. The Monetary Board also recognized that while global economic conditions have remained subdued since the previous meeting, trends in domestic economic activity show sustained firmness, supported by solid private household consumption and investment, buoyant business and consumer sentiment, and adequate credit and domestic liquidity. Given the fiscal space, higher public spending is also expected to further boost domestic demand. 
At the same time, the overall balance of risks surrounding the inflation outlook appears tilted to the upside, with pending petitions for adjustments in electricity rates along with the proposed adjustment in the excise tax rates of petroleum products and the potential second-round effect on transport fares. Slower global economic activity poses the main downside risk. 
With these considerations, the Monetary Board believes that current monetary policy settings remain appropriate. At the same time, increased uncertainty over prospects for growth and monetary policy action in major advanced economies warrants prudence in policy settings. Going forward, the BSP will continue to monitor emerging price and output conditions to ensure price and financial stability conducive to sustained economic growth.”

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