The Bangko Sentral ng Pilipinas did not see any reason to change its key rate. On Thursday, it says that inflation is still “benign.”
At their final meeting for 2019, BSP’s Monetary Board deemed it best to maintain the benchmark rate at 4 percent.
Moreover, the Board also deemed there is no reason to change the interest rates on the overnight deposit and lending facilities at 3.5 percent and 4.5 percent, respectively.
The Board made all these decisions based on its inflation outlook, as reported by Phil Star.
It assesses the inflation environment to be still benign.
Upward Trend of Inflation Explainable
The body concluded that over the near term, the upward trend in inflation is going only likely to emanate from possible volatility in international oil prices.
Prices are going to be fluctuating because of the geopolitical tensions happening in the Middle East.
Apart from this, the African Swine Fever outbreak, as well as weather disturbances, can also have an impact on prices.
Inflation movements for the past months have been a cause of concern.
The rate was in a continuous downward trend for five months before suddenly increasing in November to 1.3 percent. Back in October 2019, the rate was 0.8 percent.
Year-to-date inflation rates have averaged 2.5 percent.
This rate, however, is still within the bounds of the government’s annual target of 2 percent to 4 percent.
Several analysts reacted to the decision of BSP to not change its rates.
One of them is Nicholas Mapa, a senior economist at ING Bank.
Mapa claimed that the GDP rate is likely to remain at the lower end of the government’s target of 6 percent to 6.5 percent.
He added that the Philippine economy is expected to need stimulus, both on the fiscal and monetary aspects.
He expected that the BSP would cut its policy rate early in 2020, during the February meeting, to be exact, by 25bps.
The policy rate will ease by a total of 50bps by 2020.
Alex Holmes of Capital Economics claimed that further rate cuts are still likely, even if BSP did not show an indication that it will be doing that during the recently-concluded press conference.
He added that the growth of the Philippine economy would likely be disappointing.
This will prompt BSP to cut interest rates.
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