Philippines Monetary Policy August 2017


Philippines: Central Bank keeps rates steady and raises interest rate forecasts at August meeting

August 10, 2017

At its meeting on 10 August, the Central Bank decided to leave the Overnight Reverse Repurchase Facility (RRP) unchanged at 3.00%, and it left the Overnight Lending Facility (OLF) and the Overnight Deposit Facility (ODF) rates steady at 3.50% and 2.50%, respectively. The decision to hold firm was made primarily as a result of around target inflation. The ODF establishes the floor and the OLF the ceiling of the interest rate corridor system. Moreover, the Bank kept the reserve requirement ratios untouched. All decisions were in line with market expectations.

The decision follows moderate inflationary pressures combined with rapid economic growth as well as general global economic strengthening, although geopolitical risks to external demand remain at hand. At home, solid economic growth is being supported by optimistic consumer and business sentiment as well as expanding capacity. However, robust economic growth, expanding credit growth and rising pressures on consumer prices could push the economy to overheat. Although, the Bank decided not to change rates, some of our analysts project that these factors will drive the Bank to adopt a tighter monetary policy in future policy meetings.

The Bank raised its inflation forecasts slightly from 3.1% in 2017 and 3.0% in 2018 to 3.2% for both years. Consumer prices have increased recently due to rising oil prices, driving the upgrade to the Bank’s inflation forecast. Furthermore, the government’s proposed tax reform could put pressures on prices, although structural support and productivity gains will alleviate inflation pressures over the medium term.

Forward guidance in the Bank’s statement was sparse. The Bank maintained its wait-and-see approach and emphasized that it will remain attentive to liquidity levels and economic growth, suggesting that it is waiting for an opportune time to tighten monetary policy in the near future.

Against this backdrop, the majority of FocusEconomics Consensus Forecast panelists expect that the Central Bank will raise the RRP this year, with an average forecast of 3.32% at the end of 2017 and 3.66% at the end of 2018.

Author:, Economist

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Philippines Monetary Policy Chart

Philippines Monetary Policy August 2017

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

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