At its meeting on monetary policy today, the Monetary Board decided to maintain its policy rate, the interest rate on the BSP's overnight reverse repurchase (RRP) facility, steady at 3.0 percent. The corresponding interest rates on the overnight lending and deposit facilities were also kept unchanged.
The Monetary Board's decision is based on its assessment that while recent inflation outturns show an elevated path in 2018, the latest baseline forecasts continue to show inflation remaining within the inflation target in 2018 and moderating further in 2019. The Monetary Board also considered that prospects for domestic activity continue to be firm on the back of robust domestic demand, strong growth in credit and liquidity, and a sustained recovery in global economic growth.
At the same time, the Monetary Board observed that the risks to the inflation outlook remain weighted toward the upside owing mainly to price pressures emanating from pending petitions for adjustments in minimum wages and transportation fares. Nevertheless, non-monetary measures such as institutional arrangements in setting transportation fares and minimum wages, unconditional cash transfers, as well as transport subsidies are expected to help mitigate these inflationary impulses. In addition, the proposed reforms in the rice industry could also help temper price pressures.
Meanwhile, the Monetary Board noted that inflation expectations have started to rise and will therefore need to be monitored closely in the coming months. It was also observed that economic growth remains solid enough to absorb some policy tightening if warranted.
Given these considerations, the Monetary Board reiterates that it remains watchful against any signs of second-round effects and inflation becoming broader based. The Monetary Board stands firm in its intent to take immediate and appropriate measures to ensure that the monetary policy stance continues to support the BSP's price and financial stability objectives.