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 of inflation dynamics and the risks to the inflation outlook over the policy horizon. Latest baseline forecasts indicate that average inflation would likely settle below the target range of 3.0 percent ± 1 percentage point for 2016. However, inflation is seen to return gradually to a path consistent with the inflation target in 2017-2018 due to higher oil prices and strong domestic economic activity. The overall balance of risks surrounding the inflation outlook also remains tilted to the upside, owing partly to the pending petitions for adjustments in electricity rates as well as the initial impact of the government’s broad fiscal reform program. Increased uncertainty in global economic prospects, meanwhile, continues to pose a key downside risk to the inflation outlook. Nevertheless, inflation expectations remain broadly consistent with the inflation target over the policy horizon.
The Monetary Board also stressed that domestic demand conditions are likely to stay firm, supported by solid private household spending, higher government expenditure, and adequate domestic liquidity. In addition, the Monetary Board has considered the potential impact of the ongoing monetary policy adjustment in the US on global financial market conditions. The Monetary Board also noted that maintaining monetary policy settings at this juncture will give the BSP more time to assess evolving economic developments and calibrate its policy tools as appropriate.
With these considerations, the Monetary Board believes that prevailing monetary policy settings remain appropriate. Going forward, the BSP will continue to monitor emerging price and output conditions to ensure price and financial stability conducive to sustained economic growth.