In line with the inflation targeting approach to the conduct of monetary policy, the Development Budget Coordination Committee (DBCC), during its meeting on 20 December 2016, decided to keep the current inflation target at 3.0 percent ± 1.0 percentage point for 2017 – 2018 and approved the inflation target of 3.0 percent ± 1.0 percentage point for 2019– 2020. The government’s inflation target is defined in terms of the average year-on-year change in the consumer price index (CPI) over the calendar year. The multi-year target promotes a long-term view on inflation, helps anchor inflation expectations, and fosters greater predictability in economic decision-making by businesses, households, and other economic agents. The announcement of the target is in line with the BSP’s commitment to greater transparency and accountability in its conduct of monetary policy.
After settling below the target in 2015, inflation is seen to remain near the low end of the 3.0 percent ± 1.0 percentage point target range for 2016 and move towards the midpoint of the 3.0 percent ± 1.0 percentage point target band in 2017 – 2018. Structural changes in inflation dynamics alongside improvements in the economy’s productive capacity have been supporting a low and stable inflation environment that is consistent with the healthy pace of economic growth.
Looking ahead, robust domestic demand and sustained improvement in productive capacity following the government’s thrust towards higher government spending and tax reforms underpin the assessment of manageable inflation outlook over the medium term. Moreover, the BSP’s strong commitment to price stability has kept inflation expectations well anchored to the target over the policy horizon. The BSP will continue to monitor price developments to ensure that the monetary stance remains appropriate in keeping inflation within target.