The Philippine central bank held its benchmark interest rate steady on Thursday with the economy expected to remain in a sweet spot of strong growth and manageable inflation. The policy-making Monetary Board voted to maintain the overnight borrowing rate at 3.0 percent, as predicted by 10 economists in a Reuters poll.
"While the global economic environment has become more challenging due to expected shifts in macroeconomic policies in advanced economies...domestic economic activity is expected to stay firm," central bank officer-in-charge Nestor Espenilla said. However, it raised its inflation forecasts for this year to 3.5 percent from 3.3 percent, and for next year to 3.1 from 3.0 percent, reflecting increases in oil prices and weaker peso. The higher projections bolstered expectations the central bank would raise its benchmark interest rate this year to keep price pressures in check.
"We still expect the BSP to raise its interest rate corridor by third quarter," said Eugenia Victorino, economist at ANZ in Singapore. "We expect inflation to remain on an upward trend initially...Meanwhile robust domestic demand, coupled with the government' push for infrastructure spending, will likely push inflation higher throughout 2017," Victorino added.
The Philippine economy grew faster than expected at the end of last year on robust domestic demand and infrastructure spending, and is also seeing rising fuel costs. The central bank has not tinkered with interest rates since it raised the benchmark rate by 25 basis points in September 2014, as inflation has remained manageable despite strong growth momentum.But it set the main rate at 3.0 percent when it moved to an interest rate corridor system in June to make policy transmission faster and more efficient.