The Philippine central bank left its benchmark interest rate unchanged on Thursday, and dampened expectations for an imminent policy tightening after it lowered the outlook on inflation. The policy-making Monetary Board kept the overnight borrowing rate steady at 3.0 percent, saying domestic demand remains strong and consumer prices are forecast to stay well-behaved.
Nine out of 10 economists in a Reuters poll predicted the central bank would stand pat on rates. A lone dissenter called for a rate hike. "Based on what we see today, the Philippine economy remains robust, it remains resilient. Inflation is low and stable. You have a growing economy," deputy governor Diwa Guinigundo told a news conference.
The central bank trimmed its 2017 and 2018 inflation forecasts on lower oil prices and global economic uncertainties, although it said risks were tilted to the upside. It now expects inflation to average 3.4 percent this year from its previous estimate of 3.5 percent, and 3.0 percent in 2018 from 3.1 percent. It has a 2-4 percent inflation target for this year and next.
"We continue to think the BSP will be in little hurry to adjust rates soon. Although the headline inflation rate has been drifting higher in recent months, it remains within the BSP's target range," Capital Economics said in a research note. Tame inflation and strong growth has allowed the central bank to keep interest rates steady since it raised its main rate by 25 basis points in September 2014.
Some analysts believe the time is ripe for tighter policy as Philippine economic growth stays robust. Eugenia Victorino, economist at ANZ, is sticking to her prediction the central bank will raise rates by as much as 50 basis points this year given strong growth and rising inflation. Trinh Nguyen, economist at Natixis, agreed the next move would be a hike as US rates were going up and domestic inflationary pressures were rising.
But the deputy governor said there was no need to modify the current stance when the inflation forecasts indicate within-target levels for this year and next. The government is confident of hitting this year' 6.5-7.5 percent growth target, buoyed by higher infrastructure spending and robust consumption - the same drivers that helped spur growth in 2016 to a three-year high of 6.8 percent. Growth in the first quarter could be between 6.5-7.0 percent, or faster, economic planning minister Ernesto Pernia told Reuters on Thursday.
The central bank has two more meetings, in May and June, before the change in leadership at the monetary authority. Amando Tetangco will step down as governor in July after having served the maximum two six-year terms allowed under the law. Nomura said in a research note the transition could be another impetus for carrying out policy tightening in May and June to ensure policymakers remain ahead of the curve.
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