Philippines Monetary Policy August 2016


Philippines: Central Bank keeps rates unchanged in its August meeting

August 11, 2016

At its meeting on 11 August, the Central Bank decided to leave the Overnight Reverse Repurchase facility (RRP) unchanged at 3.00% as the markets had expected. This has been the rate since 3 June when the Central Bank slashed it from 4.00% to 3.00% and implemented an interest rate corridor system. In August, 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. Moreover, the Bank kept the reserve requirement ratio steady.

The Central Bank explained that it held rates, “based on its assessment that the inflation environment remains manageable.” On the whole, the Bank expects inflation to stay slightly below its target range of 3.0% plus/minus 1.0 percentage points this year and to rise toward the mid-point of the range during next year and the year after. Moreover, the Bank sees inflation expectations broadly in line with the inflation target. As for the Philippine economy, monetary authorities expect that economic growth will remain solid, supported by strong private consumption and investment, satisfactory lending, buoyant business and consumer sentiment, and larger fiscal spending. Lastly, the Bank assessed that the risks to the inflation forecast are broadly balanced as downside risks arising from weak global growth are counterbalanced by upside risks associated to potential upward adjustments in electricity rates.

FocusEconomics Consensus Forecast panelists see the Overnight Reverse Repurchase facility at 3.02% at the end of 2016. For 2017, panelists expect the Reverse Repurchase rate to rise to 3.27%.

Author: Massimo Bassetti, Economist

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Philippines Monetary Policy Chart

Philippines Monetary Policy August 2016 1

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

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