BSP springs surprise, keeps key rates steady

MONETARY authorities unexpectedly kept key interest rates unchanged on Thursday, citing heightened risks to inflation and economic growth.

The Bangko Sentral ng Pilipinas’ (BSP) benchmark rate remains at 5.75 percent and its overnight deposit and lending rates also stay at 5.25 percent and 6.25 percent, respectively.

Most analysts expected the central bank’s policymaking Monetary Board to again order a 25-basis-point reduction, with just one out of the 11 polled by The Manila Times predicting a pause.

BSP Governor Eli Remolona Jr., who had previously signaled a February rate cut, told reporters that “uncertainty about the outlook for inflation and growth warrant keeping monetary policy settings steady.”

“Before deciding on the timing and magnitude of further reductions in the policy interest rate, the Monetary Board deems it prudent to await further assessments of the impact of global policy uncertainty and the potential effects of the actual policies,” he added.

Inflation is still expected to stay within the 2.0- to 4.0-percent target range, but monetary authorities raised the risk-adjusted forecast for this year to 3.5 percent from 3.4 percent. That for next year was kept at 3.7 percent.

“Uncertainty over global economic policies and their impact on the domestic economy has increased significantly,” Remolona said.

“Upside pressures are seen to come from the utilities sector, [while] the impact of lower import tariffs on rice remains the main downside risk to inflation,” he added.

The central bank chief said that monetary authorities would maintain a measured approach to setting policy, “but when we say measured, that basically means 25 basis points at a time.”

“It doesn’t mean 25 basis points each time, each policy meeting. It just means when we do cut, it will just be 25 basis points. At least we hope so. I hope we don’t cut more than that.”

The BSP’s models will need to be recalibrated, he added, in light of a trade war launched by US President Donald Trump against major trading partners.

“Our models don’t capture those things very well. We have to redo our models and try to capture the uncertainty itself as an effect,” Remolona explained.

“[We’re] not quite comfortable with evaluating the impact of that, the uncertainty itself, and then we don’t quite know what the policies will be,” he added.

“There are two steps. We have to figure out what the policies will be, and we hope the uncertainty over that clears soon. But the uncertainty itself has an impact, and that’s very tricky to analyze.”

Despite the pause, Remolona said the central bank was still in an easing cycle and was not thinking about raising interest rates.

“For now, the issue is when do we actually ease in terms of moving the policy rate down. I think we have five more meetings this year, so in some of those meetings, we’ll probably be easing [but] not all of those meetings,” he said.

The BSP, in a statement, said that monetary authorities anticipate continuing a “measured shift to less restrictive monetary policy settings, even as previous policy adjustments further work their way through the economy.”

“The BSP will remain data-dependent in ensuring price stability conducive to sustainable economic growth and employment,” it added.