Philippines Holds Rate as Central Bank Cuts Inflation Forecasts

Philippines Keeps Key Rate Unchanged as Inflation Nears Target

07 Feb 2019, 03:08 PM IST

(Bloomberg) -- The Philippines central bank left its benchmark interest rate unchanged for a second straight policy meeting, white cutting inflation forecasts for this year and next.

The overnight reverse repurchase rate was held at 4.75 percent, Bangko Sentral ng Pilipinas said in a statement in Manila on Thursday. The decision was in line with the forecasts of all 22 economists surveyed by Bloomberg.

Philippines Holds Rate as Central Bank Cuts Inflation Forecasts

Key Insights

The central bank trimmed its inflation forecasts for this year and next, expecting the average price gains in 2019 to move closer to the mid-point of the 2 percent to 4 percent target range at 3.07 percent from a 3.18 percent estimate in Dec.
Inflation has slowed rapidly this year to reach a 10-month low of 4.4 percent in January after breaching the central bank’s target band in 2018. Assistant Governor Francis Dakila said during the briefing that consumer price gains could cool to below 4 percent by March.
With the U.S. Federal Reserve signaling it will pause its rate-hike cycle, emerging markets across Asia are rebounding, enabling central banks to dump their hawkish policy stances. But in the Philippines, authorities remain cautious on inflation and Deputy Governor Diwa Guinigundo said earlier this week that they need “the benefit of time and more observations” before loosening policy settings.
Bangko Sentral was among the most aggressive interest-rate hikers in Asia last year, boosting its benchmark rate by 175 basis points, to curb inflation and bolster the currency.

What Our Economists Say...
"Bangko Sentral ng Pilipinas is likely to continue to keep its policy rate on pause into 2Q, in our view. Policy makers had signaled that there may be some scope to unwind some of last year’s tightening when the conditions warrant it, but the tone of its February meeting suggests that is unlikely in the near term." --Justin Jimenez, Bloomberg Economics: Read: PHILIPPINES INSIGHT: In No Rush to Ease - BSP to Stay on Hold

What Our Economists Say...

"Bangko Sentral ng Pilipinas is likely to continue to keep its policy rate on pause into 2Q, in our view. Policy makers had signaled that there may be some scope to unwind some of last year’s tightening when the conditions warrant it, but the tone of its February meeting suggests that is unlikely in the near term."

--Justin Jimenez, Bloomberg Economics:

Read: PHILIPPINES INSIGHT: In No Rush to Ease - BSP to Stay on Hold

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Cooling prices and spending for the May mid-term elections could aid President Rodrigo Duterte’s infrastructure push in supporting economic growth, which last year slowed to its weakest since 2015

--With assistance from Tomoko Sato.

To contact the reporters on this story: Siegfrid Alegado in Manila at aalegado1@bloomberg.net;Cecilia Yap in Manila at cyap19@bloomberg.net;Ditas Lopez in Manila at dlopez55@bloomberg.net

To contact the editors responsible for this story: Clarissa Batino at cbatino@bloomberg.net, ;Nasreen Seria at nseria@bloomberg.net, Karl Lester M. Yap