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UPDATE 1-Philippine c.bank keeps rate on hold on strong growth, low inflation
December 22, 2016 / 9:01 AM / a year ago

UPDATE 1-Philippine c.bank keeps rate on hold on strong growth, low inflation

* Benchmark rate left at 3.0 pct, as expected

* 2017 inflation rate seen at 3.3 pct

* C.bank says 7 pct growth in 2016, 2017 ‘very doable’

MANILA, Dec 22 (Reuters) - The Philippine central bank saw no reason to alter monetary policy settings at its meeting on Thursday, its first since the Federal Reserve hiked rates, confident that growth will remain solid and inflation will stay within its comfort range.

The policy-making Monetary Board kept the overnight borrowing rate steady at 3.0 percent, as well as the ceiling and floor rates of its interest rate corridor at 6.0 percent and 2.5 percent, respectively.

“Domestic demand conditions are likely to stay firm, supported by solid private household spending, higher government expenditure,” Bangko Sentral ng Pilipinas Governor Amando Tetangco told a media briefing.

After likely falling below target this year, inflation is forecast to move inside the central bank’s 2-4 percent target range in 2017 and the following year, due to possible power tariff hikes and a weaker peso.

The central bank raised its inflation forecast for 2017 to 3.3 percent from 3.0 percent, and for 2018 to 3.0 percent from 2.9 percent.

It also set a 2-4 percent inflation target for 2019 and 2020.

All 13 economists polled by Reuters had expected no change in the central bank’s policy rate, but some of them said pressure from U.S. rates and robust growth in domestic demand could build the case for a hike next year.

IN A SWEET SPOT

The BSP has not tinkered with monetary policy since it raised rates by 25 basis points in September 2014, with the economy in a sweet spot of strong growth and low inflation.

But it set the main rate at 3.0 percent when it moved to an interest rate corridor framework in June to make policy transmission faster and more efficient.

At a review on Tuesday, officials kept the economic growth targets at 6.5-7.5 percent for the coming year and 7-8 percent for 2018, even as they forecast the peso to weaken against the dollar over the next two years.

Economic growth this year might top 7.0 percent after 7.1 percent annual expansion in the third quarter.

Central bank deputy governor Diwa Guinigundo told the same briefing that 7 percent growth this year and next year is “very doable”.

Reporting by Enrico dela Cruz and Neil Jerome Morales; Writing by Karen Lema; Editing by Richard Borsuk

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