Philippine lifts 2018 inflation forecast; keeps 2017, 2019 views

Despite the faster rise in consumer prices, Bangko Sentral ng Pilipinas Governor Nestor Espenilla Jr says monetary authorities believe the future inflation path will stay within target. Such confidence allowed the policy-making Monetary Board of the Bangko Sentral ng Pilipinas to keep the policy-rate structure unchanged since so-called operational adjustments were made in June previous year.

Inflation projections based on a survey of the private sector remained at 3.2 percent for this year; however, forecast for 2018 was raised to 3.4 percent from 3.2 percent.

The BSP's overnight reverse repurchase (RRP) facility is still at three percent, and the rates on the overnight lending and deposit facilities are the same.

This had the impact of keeping the rate at which the BSP borrows from banks unchanged at 3 percent.

Such was their confidence that forecast inflation this year was kept steady at 3.2 percent, although the forecast inflation next year was recast higher to 3.4 percent, from 3.2 percent originally.

The BSP sees the inflation outlook as manageable even as it continues to acknowledge that risks are skewed to the upside.

The inflation rate climbed higher in October at 3.5 percent from 3.4 percent in September, it is the highest monthly rate for the year.

This brought the average inflation to 3.2% in the 1st 10 months of 2017. In the meantime, the proposed tax reform program "may exert potential transitory pressures on prices, although various social safety nets and the resulting improvement in output and productivity are also expected to temper the impact on inflation over the medium term".

According to Espenilla, Philippine monetary authorities will continue to take into account monetary actions but do not have to move in sync with other central banks such as the US Federal Reserve.

"We have different economic and business cycles, and adjustments in monetary policy by the US Fed does not necessarily warrant a corresponding response of monetary policy from the BSP", Guinigundo said.

"If you look at our inflation forecast, there is very little reason for us to adjust monetary settings at this point in time", Guinigundo also said.

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