Philippine central bank holds key rate as inflation seen within target range

MANILA: The Philippine central bank on Thursday held interest rates steady, as expected, sticking to its view that inflation would ease well into the 2-4 percent target range next year.

It signalled, however, that the option to raise the policy rate, now at 3.0 percent, remains on the table as it keeps an eye on inflation and economic output data for cues.

The policy-making Monetary Board voted to keep the overnight borrowing rate steady, as well the rates on its lending and deposit facilities. It also left reserve requirement ratio for banks unchanged.

The central bank has kept policy settings unchanged since it hiked its overnight borrowing rate by 25 basis points in September 2014.

In a Reuters poll, seven of 11 institutions had expected the Bangko Sentral ng Pilipinas to keep the rate steady, while four had predicted a rate hike of 25 basis points.

"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 said.

Using 2012 as base year, the central bank expects inflation to average 3.9 percent in 2018 and 3.0 percent next year.

Based on the 2006 series, it expects inflation of 4.5 percent for 2018 and 3.5 percent for 2019, up slightly from its prior estimates of 4.34 percent and 3.49 percent, respectively.

The Philippine statistics agency rebased the CPI calculation to 2012 from the current 2006 base-year and adjusted the weighting of some price groups in the consumer basket to track the changing path of consumption.

The Philippines, one of Asia's fastest growing economies, is strong enough to absorb the impact of "some policy tightening if warranted", Espenilla said, even as he reiterated the country was not at risk of overheating.

The peso closed at 52.20 per dollar weaker than the previous day's close at 52.15. The central bank's decision on rates was announced after the currency market had closed.

Policymakers said the "peso continues to reflect market fundamentals".