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 inflation continues to be manageable, with a gradual return to the inflation target range expected over the policy horizon. While latest forecasts indicate that average inflation is likely to settle slightly below the lower edge of the 3.0 percent ± 1.0 percentage point target range in 2016, it is projected to rise toward the mid-point of the target range in 2017 and 2018. The overall balance of risks surrounding the inflation outlook remains tilted to the upside owing largely to the pending petitions for adjustments in electricity rates along with the proposed tax policy reform program. Slower global economic activity continues to be a key downside risk. Meanwhile, inflation expectations remain broadly consistent with the inflation target over the policy horizon.
At the same time, the Monetary Board also observed that prospects for global economic growth remain modest and uneven since the previous meeting. Moreover, monetary policies in major advanced economies continue to be asynchronous and the prospects uncertain. On the other hand, domestic economic activity is seen to remain firm, supported by solid private household consumption and investment, buoyant business and consumer sentiment, and adequate credit and domestic liquidity. Higher fiscal spending is also expected to further boost domestic demand in the near term.
On balance, the assessment of recent new information continues to support keeping monetary policy settings unchanged. Going forward, the BSP will continue to monitor emerging price and output conditions to ensure price and financial stability conducive to sustained economic growth.