Philippines Holds Rate at 3% as Inflation Seen on Target

Updated on
  • Rate held at 3% as predicted by all economists surveyed
  • Inflation forecast to remain on target from 2017 to 2019
Photographer: Mohd Rasfan/AFP via Getty Images

The Philippine central bank left its benchmark interest rate unchanged at a record low with inflation seen remaining within its target band until 2019. 

Key Points

  • The central bank held the key rate at 3 percent, it said in a statement on Thursday, as forecast by all 18 economists in a Bloomberg survey
  • Inflation is forecast to average within the 2 percent to 4 percent target range until 2019

    201720182019
    New forecasts3.2%3.2%3.2%
    Aug. forecasts3.2%3.2%3.1%

    Deputy Governor Diwa Guinigundo gave the new forecasts in a briefing in Manila. The revised outlook for 2019 is due to higher oil prices and the weaker peso, while robust demand for liquidity and an anticipated increase in minimum wages in October were also considered in the latest outlook
  • Price gains will likely be capped at 3.4 percent for the rest of the year, he said

The Backdrop

Asia’s worst-performing currency this year and surging credit growth have stoked speculation among some economists that Bangko Sentral ng Pilipinas may start raising interest rates as soon as the fourth quarter. But policy makers have shrugged off concerns the economy may be overheating and have pointed out the central bank has tools to curb excesses.

The economy is headed for a sixth year of growth exceeding 6 percent, among the world’s fastest. While an ongoing conflict in the south and a deadly drug war pose rising risk, Moody’s Investors Service said it’s unlikely to stunt the economy.

Economist Takeaway

  • “Core inflation figures suggest underlying price pressures remain in check,” Alex Holmes, Asia economist at Capital Economics Ltd. in London, said in a note. “Meanwhile, with the economy growing at a decent pace and the outlook remaining positive, there is little need for more supportive monetary policy.”

Markets

  • The peso fell 0.2 percent to 51.08 per dollar. The announcement was made after domestic markets closed
  • The benchmark stock index rose 0.8 percent to near a record


— With assistance by Norman P Aquino

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