Philippines Monetary Policy December 2016


Philippines: Central Bank keeps rates unchanged at its December meeting

December 22, 2016

At its meeting on 22 December, the Central Bank decided to leave the Overnight Reverse Repurchase facility (RRP) unchanged at 3.00%, as the markets had expected. In December, the Central Bank also kept the Overnight Lending Facility (OLF) and the Overnight Deposit Facility (ODF) unchanged at 3.50% and 2.50%, respectively. The ODF establishes the floor and the OLF the ceiling of the interest rate corridor system. Likewise, the Bank kept the reserve requirement ratio untouched.

The Central Bank explained that it held rates, “based on its assessment of inflation dynamics and the risks to the inflation outlook over the policy horizon.” On the whole, the Bank expects inflation to stay below its target range of 3.0% plus/minus 1.0 percentage points in 2016 and to rise gradually to a path consistent with the target range in 2017 and 2018, on the back of both higher energy prices and solid domestic activity.

Analyzing the Philippine economy, the monetary authorities expect domestic demand to remain firm, supported by strong private and government consumption as well as adequate liquidity. Moreover, the Bank sees inflation expectations broadly in line with the inflation target. Lastly, the Bank assessed that the main upside risks to the inflation outlook are represented by a potential adjustment in electricity rates and the effects of government’s fiscal reform program, while increased global economic uncertainty constitutes the main downside risk. All in all, the Bank considered that maintaining the current monetary policy setting unchanged will give the bank sufficient room to assess upcoming economic developments and react accordingly.

The next monetary policy meeting is scheduled for 9 February.

FocusEconomics Consensus Forecast panelists see the Overnight Reverse Repurchase facility at 3.33% at the end of 2017. For 2018, panelists expect the Reverse Repurchase rate to rise to 3.55%.

Author: Massimo Bassetti, Economist

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Philippines Monetary Policy Chart

Philippines Monetary Policy December 2016

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

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