Philippines: Central Bank keeps rates unchanged at its June meeting
June 29, 2017
At its meeting on 22 June, the Central Bank decided to leave the Overnight Reverse Repurchase facility (RRP) unchanged at 3.00%, keep the Overnight Lending Facility (OLF) at 3.50% and maintain the Overnight Deposit Facility (ODF) unchanged at 2.50%. The ODF establishes the floor and the OLF the ceiling of the interest rate corridor system. Likewise, the Bank kept the reserve requirement ratios untouched. All decisions were in line with market expectations.
The Bank’s decision came as the Philippines’ economy continues to enjoy robust growth, underpinned by strong private consumption and external demand, especially from China. Nevertheless, although Q1’s GDP showed another quarter of healthy expansion, the reading came somewhat below market expectations. Moreover, inflation softened in May after rising steadily until April, moving back towards the center of the Central Bank’s target of 3.0% plus/minus one percentage point. Inflation in recent months has been driven by higher food and oil prices and by base effects, but as oil prices are showing notable weakness and the low base effect will fade out in the coming months, this should translate into easing price pressures going forward. Consequently, the Bank expects inflation remaining within its target range for 2017–2019. The decision not to move rates gives the Bank more room to adopt a tighter monetary policy in future policy meetings when the Bank will be able to assess the economic consequences of the Fed’s tightening cycle and observe whether inflation remains steadily within the target range.
The statement was devoid of strong forward guidance, although some hints regarding future developments came from mentions of inflation risks being tilted to the upside, due to possible impacts of the government’s proposed tax reform. Coupled with likely robust economic growth going forward, this suggests the Bank may tighten its monetary stance slightly in the near future.