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Philippines Monetary Policy March 2019

Philippines: Central Bank maintains holding pattern in March amid weakening inflation

At its 21 March monetary policy meeting, the Monetary Board of the Central Bank of the Philippines (BSP) left the overnight reverse repurchase facility (RRP) on hold at 4.75%, which was in line with market expectations. Likewise, the overnight deposit facility (ODF) and the overnight lending facility (OLF) rates—which establish the floor and the ceiling of the interest rate corridor system—were also left unchanged at 4.25% and 5.25%, respectively. This was the first meeting under the leadership of newly-appointed Governor Benjamin Diokno.

The Bank’s third consecutive hold came on the heels of inflation falling within the Bank’s target range of 3.0% plus or minus 1.0 percentage point for the first time in a year in February (3.8%). Inflationary pressures have eased notably in recent months primarily due to improved food supply, which has weakened import inflation. Moreover, the BSP expects inflation to further stabilize within the target band over this year and next. The Bank deemed inflationary risks to be relatively balanced, but it did note that the impact of El Niño or higher-than-expected global oil prices could tilt risks to the upside in 2019. Regarding economic prospects over the year ahead, the Bank cited solid domestic activity due to a rebound in consumer spending and the government’s infrastructure program to be supportive to growth. However, the BSP stated that a protracted budget deadlock could hamper growth if not resolved soon.

The BSP provided little forward guidance in its communiqué apart from maintaining its wait-and-see approach. However, a more stable inflation outlook, paired with the U.S. Federal Reserve’s sudden dovish turn gives the Bank even more elbow room to shift to a more accommodative stance as concerns of capital outflows and currency routs dissipate. Against this backdrop, the majority of FocusEconomics Consensus Forecast panelists have penciled in one or two rate cuts in 2019, while the others expect the Bank to keep rates on hold, suggesting the Bank’s tightening cycle has come to a close.

The next monetary policy meeting will be held on 9 May 2019.

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