September 21, 2017 / 9:58 AM / 10 months ago

Philippine central bank stands pat on rates as inflation remains tame

MANILA (Reuters) - The Philippine central bank kept its key interest rate unchanged on Thursday as widely expected, predicting inflation will remain within its comfort range this year and next despite robust economic growth.

A motorcycle pases a building of the Bangko Sentral ng Pilipinas (Central Bank of the Philippines) in Manila, Philippines April 28, 2016. REUTERS/Romeo Ranoco/File Photo

In leaving the benchmark rate at 3.0 percent, the policy-making Monetary Board said the central bank’s latest forecasts show that inflation will stay within its target range of 2-4 percent from this year through 2019.

All 13 economists in a Reuters poll had forecast the Bangko Sentral ng Pilipinas (BSP) would leave its main rate unchanged with inflation under control.

“Looking ahead, the BSP will continue to be vigilant against any risks to the inflation outlook,” central bank Governor Nestor Espenilla told a media briefing.

The central bank kept its inflation forecasts for 2017 and 2018 both at 3.2 percent, unchanged from previous estimates. The target for 2019 is also 3.2 percent.

But Espenilla said the planned tax reform program, currently being debated by legislators, could stoke price pressures.

“The balance of risks to the inflation outlook also continue to be on the upside,” he said.

Still, the risks of any near term change to policy appeared low.

“With the economy growing at a decent pace and the outlook remaining positive, there is little need for more supportive monetary policy,” said Capital Economics economist Alex Holmes.

Holmes expects the policy rate will remain unchanged throughout 2017 and 2018.

To be sure, some economists expect the BSP will raise rates as early as the fourth quarter to limit overheating risks in the economy and to support the peso PHP=, given the prospect of policy tightening by major central banks. The U.S. Federal Reserve on Wednesday signaled it still expects one more increase by the end of the year.

The peso has sunk to 11-year lows, with a 3 percent drop against the U.S. dollar making it Asia’s worst performing currency so far this year.

Another Fed rate hike could cause the peso to weaken, and have “collateral impact on the balance of payments,” said central bank deputy governor Diwa Guinigundo.

Philippine policymakers have not touched monetary levers since they raised interest rates by 25 basis points in September 2014, mainly because inflation has remained moderate even as robust growth made it one of Asia’s strongest performing economies this year.

In trying to facilitate faster policy transmission, the central bank moved to an interest rate corridor in June last year and set the main rate at 3.0 percent.

Inflation averaged 3.1 percent in the eight months to August, while economic growth was above 6 percent in the first half of the year.

Reporting by Karen Lema and Enrico dela Cruz; Writing by Manolo Serapio Jr.; Editing by Kim Coghill & Shri Navaratnam

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