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Monetary Board Maintains Monetary Policy Settings


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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