MONETARY authorities decided to keep key interest rates unchanged on Thursday with inflation expected to remain on target this year and the next.

The Bangko Sentral ng Pilipinas’ (BSP) overnight borrowing, lending and deposit rates were maintained at 3 percent, 3.5 percent and 2.5 percent, respectively, during the Monetary Board’s second policy meeting for 2018.

Consumer price growth, however, is expected to pick up before slowing down in 2019.

Using 2012 prices, the inflation forecast for 2018 was raised to 3.9 percent from 3.8 percent while the 3.1 percent estimate for 2019 was trimmed to 3.0 percent. Both forecasts are within the 2.0-4.0 percent official target.

Based on previously used 2006 prices, however, the revised 2018 inflation forecast is higher at 4.5 percent from the previous forecast of 4.3 percent. The 2019 outlook, meanwhile, is a higher 3.5 percent from 3.4 percent.

“The Monetary Board’s decision is based on its assessment that while recent inflation outturns show an elevated path in 2018, the latest baseline forecasts continue to show inflation remaining within the inflation target in 2018 and moderating further in 2019,” central bank Governor Nestor Espenilla Jr. said in a press briefing.

Deputy Governor Diwa Guinigundo said that monetary authorities had considered slower growth in oil prices and base effects.

Risks to the inflation outlook remain weighted toward the upside, officials said, owing mainly to price pressures emanating from pending petitions for wage and transport fare adjustments

“Nevertheless, non-monetary measures such as institutional arrangements in setting transportation fares and minimum wages, unconditional cash transfers, as well as transport subsidies are expected to help mitigate these inflationary impulses,” Espenilla said.

Proposed rice industry reforms could also help temper price pressures, he added.

Espenilla said the Monetary Board was of the view that prospects for domestic activity remained firm on the back of robust domestic demand, strong credit and liquidity growth, and a sustained global economic recovery.

He raised the prospect of rate increases moving forward as inflation expectations had risen, necessitating the need for closer monitoring in the coming months.

“It was also observed that economic growth remains solid enough to absorb some policy tightening if warranted,” Espenilla said.

The Monetary Board remains watchful against any signs of second-round effects and inflation becoming broader-based, he added.

Monetary authorities, Espenilla continued, will take immediate and appropriate measures to ensure that the policy stance continues to support price and financial stability objectives.

Asked to comment on the impact of the US Federal Reserve rate hike, he pointed out that the BSP pursues an independent monetary policy.

“We have clarified in the past that our monetary policy positioning is not really in lock-step in what the Fed does. So what the Fed did today is an important piece of information that we consider as part of external developments,” he said.

“But what drives our monetary policy evaluation is really our assessment of domestic conditions, particularly since we are an inflation-targeting economy. We are focused on inflation developments,” he added.

The US central bank on Wednesday (Thursday in Manila) announced that it was raising its policy rate by 25 basis points to 1.5-1.75 percent.

Meanwhile, London-based research consultancy firm Capital Economics said that rising inflation would not force the BSP to tighten.

“The main factor behind the recent rise in inflation is an increase in indirect taxes on high-sugar drinks, tobacco and alcohol. Although the year-on-year rate of inflation will remain elevated throughout 2018, it should drop back at the start of next year,” it said.

“What’s more, the statistics authority has started producing a rebased inflation series, which will become the sole measure in July. The new series shows inflation 0.6 percent-points lower than the current measure and within BSP’s target range,” it added.

Given these, Capital Economics said it expected key interest rates to remain on hold for the rest of the year. /BY MAYVELIN U. CARABALLO, TMT ON All photographs, news, editorials, opinions, information, data, others have been taken from the Internet | [email protected] | For comments, Email to : Pahulu Gan – Contributor | [email protected]