BSP holds interest rate as inflation seen in target

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The Philippine central bank left its benchmark interest rate at a record low as it forecast inflation will remain inside the target band this year and in 2019.

Bangko Sentral ng Pilipinas held the overnight borrowing rate at 3%, it said in a statement on Thursday, March 22, as predicted by 11 of 17 economists surveyed by Bloomberg. The rest forecast an increase to 3.25%.

A pickup in inflation, economic growth above 6% and a currency slump have failed to convince Governor Nestor A. Espenilla, Jr. to raise interest rates. Prices have risen this year following higher taxes on fuel, sugary drinks and other goods, but the central bank’s view is that there isn’t yet evidence of inflation pressure broadening out in the economy.

“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,” Espenilla said.

The bank’s forecast is for inflation — using the new base year of 2012 — to average 3.9% this year, within the target band of 2% to 4%.

Aside from South Korea and Malaysia, central banks in Asia have been slow to follow the U.S. Federal Reserve in tightening monetary policy. Indonesia is set to keep its benchmark rate unchanged at 4.25% later on Thursday.

The recently overhauled data in the Philippines shows prices rose 3.9% in February from a year ago. Inflation will probably peak in the third quarter, Deputy Governor Diwa Guinigundo told reporters, adding that policy makers are ready to respond to shifting conditions.

“If the data shows there is basis to move, the monetary board will not wait,” Espenilla said.

The peso has lost more than 4% against the dollar this year, the worst in Asia. It fell 0.5% to P52.382 as of 4:30 p.m. in Manila. — Bloomberg