At its meeting today, the Monetary Board decided to maintain the BSP's key policy rates at 4.0 percent for the overnight borrowing or reverse repurchase (RRP) facility and 6.0 percent for the overnight lending or repurchase (RP) facility. The interest rates on term RRPs, RPs and special deposit accounts (SDA) were also kept steady. The reserve requirement ratios were likewise left unchanged.
The Monetary Board’s decision is based on its assessment of a continuing manageable inflation environment. Latest forecasts continue to indicate that average inflation is likely to settle within the target range of 3.0 percent ± 1.0 percentage point for 2016-2017. The Monetary Board observed that inflation continues to be driven mainly by supply-side factors. Meanwhile, inflation expectations for 2016 have declined slightly due to low inflation readings in recent months but remain firmly within the inflation target band over the policy horizon. The Monetary Board also recognized that while global economic conditions have become weaker since the previous meeting, prospects for domestic economic activity nevertheless remain robust, supported by solid private household consumption and investment, buoyant business sentiment, and adequate credit and domestic liquidity. Higher fiscal spending is expected to further boost domestic demand.
At the same time, the overall balance of risks surrounding the inflation outlook remains tilted to the downside, with potential downward price pressures associated with slower-than-expected global economic activity and possible second-round effects from lower international oil prices. Nevertheless, upside risks to the inflation outlook could come from the impact of El Niño dry weather conditions on food prices and utility rates as well as pending petitions for power rate adjustments.
Given these considerations, the BSP will continue to monitor emerging price and output conditions to ensure the consistency of the monetary policy stance with stable prices and sustainable economic growth.