BSP keeps key rates steady to spur growth

Interest rates Thursday were kept on hold as monetary authorities sought to give the country’s slowing economy the space it needs to return to higher growth rates.

According to Bangko Sentral ng Pilipinas (BSP) officials, brewing concerns may lead to consumer price instability in the coming months but, for now, conditions remain calm.

“The monetary board’s decision is based on its assessment that the inflation environment will continue to be more manageable,” BSP Governor Amando M. Tetangco Jr. said during a press conference.

Analysts polled by the Inquirer earlier this week were unanimous in projecting the central bank’s move. Benchmark overnight borrowing and lending rates were kept at 4 and 6 percent, respectively.

Earlier this year, these benchmarks were each hiked from record lows by half a percentage point.

Key rates influence the cost of money in the economy. The BSP’s main goal is to protect the peso’s purchasing power by keeping prices stable. This is done mainly by adjusting interest rates, which influence the amount of cash circulating in the economy. Monetary authorities also influence the amount of cash circulating in the economy through various sterilization tools.

Inflation forecasts for 2014, 2015, and 2016 were also reduced Thursday, reflecting expectations that prices would remain stable. Consumer prices are expected to have risen by an average of 4.2 percent by the end of the year, lower than the previous projection of 4.4 percent.

Next year, inflation is expected to average at 3 percent—against the previous 3.7 percent. Prices in 2015 may rise by 2.6 percent—lower than the previous forecast of 2.8 percent.

Risks to overall consumer prices still bear watching, the BSP said. Chief of these risks is the country’s precarious power situation for 2015.

“We all know that there are pending petitions. They have been considered in the baseline forecasts. But anything can happen in terms of magnitude and timing,” BSP Deputy Governor Diwa C. Guinigundo said.

A potential nationwide power shortage may also affect consumer prices in 2015. Paolo G. Montecillo

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