Philippines Monetary Policy March 2016


Philippines: Central Bank keeps rates unchanged at its March meeting

March 24, 2017

At its meeting on 23 March, the Philippine Central Bank decided to leave the Overnight Reverse Repurchase facility (RRP) unchanged at 3.00%, and 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 ratios untouched. All decisions were in line with market expectations.

Growth in the country remains robust, underpinned by strong domestic demand. Inflation in February came in at 3.3%, prompting annual average inflation to edge up to an 18-month high of 2.1%, slightly above the lower band of the Central Bank’s target of 3.0% plus/minus 1.0 percentage point. Inflation in recent months has been driven by higher food and oil prices and base effects. However, as of late March, the oil price had fallen below USD 50 per barrel for the first time since the beginning of the year, which will likely ease price pressures going forward. Consequently, the Bank revised down its inflation projections and now sees average inflation at 3.4% this year and 3.0% in 2018. The decision not to increase rates gives the Bank more leeway in future policy meetings to adopt a tighter monetary policy.

The statement was devoid of strong forward guidance. Some hints regarding future developments came from mentions to inflation risks being tilted to the upside, due to possible hikes in electricity tariffs and the impact of the government’s fiscal reform program. This, together with the ongoing phase of currency depreciation and robust economic growth, suggests that the Bank may tighten its monetary stance 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 and the next, with an average forecast of 3.35% at the end of 2017 and 3.60% at the end of 2018.

Author: Massimo Bassetti, Economist

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Philippines Monetary Policy Chart

Philippines Monetary Policy March 2017

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

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