Philippines Monetary Policy February 2019


Philippines: Central Bank keeps rates on hold in February; pencils in softer inflation for 2019 and 2020

February 7, 2019

At its 7 February monetary policy meeting, the Monetary Board of the Central Bank of the Philippines (BSP) kept the overnight reverse repurchase facility (RRP) unchanged at 4.75%. Likewise, the overnight deposit facility (ODF) and the overnight lending facility (OLF) rates were also left unchanged at 4.25% and 5.25%, respectively. The ODF establishes the floor, whereas the OLF establishes the ceiling of the interest rate corridor system. Amid notably softer inflationary pressures, the decision was in line with analysts’ expectations.

BSP kept rates on hold for the second consecutive meeting in February as the effects of its previous monetary tightening continue to feed through the economy. Headline inflation fell to 4.4% in January (December: 5.1%) as food prices pressures and transport costs eased further. Looking ahead, the Bank foresees stabilizing food prices and lower oil costs to push down inflation towards its target range of 3.0% plus or minus 1.0 percentage point, entering the upper half of the band as early as H1 2019. Overall, the Bank now pencils in average inflation of 3.1% in 2019, down from its previous projection of 3.2%, and 3.0% in 2020.

While the BSP is likely relieved to see inflation on a downward trajectory, it maintained its cautious rhetoric in the communiqué. The tone suggests the Bank will continue to take a wait-and-see approach and ensure inflation is well within the target band before even considering shifting its monetary policy stance.

Commenting on the Bank’s latest move, Nicholas Mapa, a senior economist at ING, stated:

“BSP’s inflation forecasts validate that the BSP is likely done with its tightening cycle, with a policy reversal in sight given slowing growth momentum and inflation in check. […]  With growth expected to teeter close to the edge of 6% given the recent budget delay and with the inflation objective safeguarded, BSP may finally opt to give the economy an added boost to regain flagging growth momentum.”

The next monetary policy meeting will be held on 21 March 2019.

Philippines Interest Rate Forecast

Against this backdrop, the majority of FocusEconomics Consensus Forecast panelists expect the Bank to keep rates unchanged through 2019 and see the Bank cutting rates in 2020. Our panel projects the overnight reverse repurchase rate to end 2019 at 4.75% and to end 2020 at 4.71%.


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Philippines Monetary Policy Chart

Philippines Monetary Policy February 2019

Note: Reverse Repurchase Rate in %.
Source: Central Bank of the Philippines (BSP).

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