OREANDA-NEWS. February 13, 2015. The Philippine central bank left its benchmark interest rate on hold on Thursday, as expected, and signalled it can stay on the sidelines for some time, with the country in a sweet spot with low inflation and strong growth.

The Monetary Board voted to maintain the overnight borrowing rate at 4.0 percent for a third straight meeting, as it forecast inflation to stay within target this year and next amid robust economic growth.

The board also kept the rate on its short-term special deposit accounts (SDA) steady at 2.5 percent, given manageable liquidity.

"The Monetary Board is of the view that the within-target inflation outlook and robust domestic growth support keeping policy settings steady," Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco told a media briefing.

Between July and September, the BSP raised the overnight borrowing rate 50 basis points to 4 percent.

Risks to inflation are broadly balanced, the central bank said, with price expectations firmly anchored, letting it lower its 2015-2016 inflation projections.

Rather than 3.0 percent, the central bank now expects inflation to average 2.3 percent this year, within the 2-4 percent inflation target, mainly due to easier oil prices, lower global growth, a delay in power-rate hikes, and relatively stable rice prices.

STRONG PESO SEEN

Next year's inflation is seen at 2.5 percent, from the 2.6 percent estimate made in December.

Low inflation and strong growth will probably let the BSP hold interest rates until the second half of 2015, or whenever the Federal Reserve hikes US borrowing costs. Solid US jobs data in January renewed expectations of a mid-year Fed increase.

Helping dampen inflation is the Philippine peso, which is likely to remain strong throughout the year, Diwa Guinigundo, BSP deputy governor, told reporters.

"Directionally, we're looking at a stronger peso because with oil prices coming down, the current account surplus may, in fact, increase," Guinigundo said, adding the country's strong growth could attract more foreign investment inflows.

The peso has gained about 0.7 percent against the US dollar this year, the second best performer in the region after the rupee.

Annual inflation in January hit a 17-month low of 2.4 percent while fourth quarter economic growth surged an annual 6.9 percent, pushing average GDP growth in 2014 to 6.1 percent, fastest in the region after China.

The growth outlook for Southeast Asia's fifth-largest economy remains robust, underpinned by exports and investments. It targets growth of 7-8 percent this year.