THE Bangko Sentral ng Pilipinas (BSP) announced on Thursday it continues to maintain the country’s all-time low monetary policy rates despite its expectation that the country’s inflation path is higher than earlier expected.
BSP Governor Benjamin Diokno said the Monetary Board decided to maintain the interest rate on the BSP’s overnight reverse repurchase facility at 2 percent. The interest rates on the overnight deposit and lending facilities were likewise kept at 1.5 percent and 2.5 percent, respectively.
This is despite their latest baseline forecasts which indicate a higher inflation path over the policy horizon.
BSP Deputy Governor Francisco Dakila Jr. said inflation is now expected to average at 4.4 percent, representing an upward adjustment from the 4.1- percent forecast in August.
The inflation accelerated to 4.9 percent in August 2021 from 4 percent in its previous month. This is the highest inflation recorded since January 2019.
With the August 2021 inflation, the country’s average eight-month inflation stood at 4.4 percent.
For next year, Dakila said they also revised upwards their inflation forecast from 3.1 percent to 3.3 percent. For 2023, inflation is expected to average at 3.2 percent from the earlier 3.1 percent projection.
Diokno said the risks to the inflation outlook are seen rising for the rest of 2021 as pressures on international commodity prices amid improving global demand and lingering supply-chain bottlenecks — and the potential effects of weather disturbances and possibly prolonged recovery from the African Swine Fever (ASF) outbreak — could keep pushing up prices.
Dakila said monthly inflation could hit above 5 percent in September and will still remain elevated in October before falling to within the target range of 2 to 4 percent in November.
Despite the looming inflationary pressures, prevailing monetary policy settings remain appropriate, however, as price growth remains “manageable” and growth outlook remains uncertain, in the BSP governor’s views.
“Keeping a steady hand on the BSP’s policy levers will allow the momentum of economic recovery to gain more traction by helping boost domestic demand and market confidence,” Diokno said.
Diokno also vowed to keep monitoring evolving conditions for any threats to the inflation target.
“The BSP stands ready to take appropriate measures as necessary to ensure that the monetary policy stance remains in line with its price and financial stability mandates,” the governor said.
Overall, Diokno also said the outlook for the country’s recovery continues to hinge on timely measures to prevent deeper negative effects on the Philippine economy.
“To this end, the acceleration of the Government’s vaccination program and a recalibration of existing quarantine protocols will be crucial in supporting economic activity while safeguarding public health and welfare,” he said.
The BSP has kept the country’s monetary policy since December last year, with its aim to be supportive of the country’s economic recovery.