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Philippines Monetary Policy June 2019

Philippines: Central Bank holds fire in June

At its 20 June monetary policy meeting, the Central Bank of the Philippines (BSP) left the overnight reverse repurchase facility (RRP) unchanged at 4.50%, matching market analyst expectations. Likewise, the overnight deposit facility (ODF) and the overnight lending facility (OLF) rates—which establish the floor and the ceiling of the interest rate corridor system—were also held steady. The Bank’s decision follows its 25-basis point rate cut in May, in which the BSP began to unwind some of last year’s aggressive 175 basis point tightening.

The Bank was guided by more moderate inflation; even though inflation rose for the first time in nine months in May (May: 3.2%), this was more likely a one-off effect than a change in trajectory. More importantly, inflation expectations remain well anchored within the Bank’s target range of 3.0% plus or minus 1.0 percentage point. The BSP views inflationary risks to be broadly balanced going forward, with downside risks of easing economic momentum offset by upward pressures from a prolonged El Niño.

In its communiqué, the BSP took a neutral stance, stating a “prudent pause” would allow the Bank to monitor the effects of its previous monetary policy actions and that it would maintain its current stance “for the time being”. However, many FocusEconomics panelists see additional monetary policy loosening as a likely possibility.

Nicholas Mapa, a senior economist at ING, sees the Bank ready to continue its easing cycle, explaining:

“Part of the reason why BI [Bank Indonesia] and BSP were actively hiking policy rates in 2018 stemmed from concerns regarding their current account deficits. […] Given the prospects for slower global trade due to the protracted trade spat, we could see their current account deficits remain relatively wide in 2019. Given this outlook, we can expect BI and BSP to tread cautiously on rate cuts but act decisively to ease monetary policy should the data indeed support a reduction in policy rates.”

The next monetary policy meeting will be held on 8 August 2019.

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