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. While inflation forecasts have risen slightly due to the recent increase in global oil prices, the future inflation path continues to be within the target for 2017-2019. Meanwhile, inflation expectations also remain firmly anchored close to the midpoint of the Government’s 3 percent ± 1 percentage point target over the policy horizon.
The Monetary Board also recognizes that the balance of risks to the inflation outlook continues to be on the upside. While the proposed tax reform program may exert potential transitory pressures on prices, various social safety nets and the resulting improvement in productivity will likely temper the impact on inflation over the medium term.
At the same time, while output prospects for the global economy have improved, downside risks to external demand remain, due in part to geopolitical tensions and lingering uncertainty over macroeconomic policies in advanced economies. The outlook for domestic economic activity continues to be firm, supported by buoyant consumer and business sentiment and ample liquidity. Moreover, as credit activity expands in line with output growth, the economy’s improving absorptive capacity is likewise seen to be sustained, thus mitigating inflation pressures over the long run. Nonetheless, the Monetary Board continues to pay close attention to the evolving economic growth and liquidity conditions and their implications for price and financial stability.
With these considerations, the Monetary Board believes that prevailing monetary policy settings continue to be appropriate. Looking ahead, the BSP will remain vigilant against any risks to the inflation outlook and will adjust its policy settings as needed to ensure that future inflation stays aligned with the medium-term target while being supportive of sustainable economic growth.