Bangko Sentral keeps rates steady, as expected

The Bangko Sentral ng Pilipinas' (BSP) policy-making Monetary Board (MB) revised upwards the central bank's average inflation forecasts for 2017-19 but said inflation remains manageable; thus, it kept key rates steady.

The corresponding interest rates on the overnight lending and deposit facilities were also frozen where they are at present, and the banks' deposit reserves similarly steadied.

However, the new average inflation forecast for this and next year is at 3.2 percent while it is 3.1 percent for 2019.

Philippine central bank Governor Nestor Espenilla kept interest rates unchanged in his debut policy meeting as head of the bank, while slightly raising forecasts for inflation because of pressure from oil prices.

Inflation last June slowed to 2.7 percent from month-ago's 3.1 percent but inflation last July moved up slightly to 2.8 percent.

Aside from oil price increases, Guinigundo said stronger growth of domestic liquidity is another factor for the change in the inflation projections.

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Inflation for the first seven months was 3.1%, well within the central bank's 2-4% target. While some economists, including from BMI Research, predict higher interest rates this year, Espenilla has said the Philippines isn't in a race to tighten monetary policy.

"BSP is likely to keep the policy rate unchanged for the rest of the year because it looks like inflation is going to be fairly stable", said Euben Paracuelles, an economist at Nomura Holdings Inc.in Singapore.

At the same time, he said, "while output prospects for the global economy have improved, downside risks to external demand remain, due in part to geopolitical tensions and lingering uncertainty over macroeconomic policies in advanced economies".

"That uncertainty may create the potential for a lower growth level than now factored in our growth projections", Espenilla said.

Espenilla also said the optimistic view is validated by buoyant consumer data, business sentiment and, certainly, by ample liquidity in the system.

Increased government spending may have fuelled a 7 percent growth in the second quarter, economic planning secretary Ernesto Pernia said on Wednesday, outpacing the 6.4 percent in the first quarter and putting the country on track to meet its 6.5-7.5 percent growth target this year. "The outlook for inflation doesn't warrant tighter policy".

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