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Thursday, March 28, 2024

BSP keeps rates low to support economy

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THE Bangko Sentral ng Pilipinas (BSP) announced on Thursday that it has decided to maintain its monetary policy settings at an accommodative stance to provide continued support to the economy amid Covid-19 related disruptions.

In a virtual press briefing, BSP Governor Benjamin Diokno said the Monetary Board decided to keep the interest rate on their 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 the fifth consecutive time that the Monetary Board retained their monetary policy settings at record lows to support the economy. BSP Deputy Governor Francisco Dakila Jr. also said in the same briefing that the BSP “has space” for monetary policy to be “accommodative as long as necessary” until the BSP sees “stronger and sustainable signs” of economic recovery.

“On balance, the expected path of inflation and downside risks to domestic economic growth warrant keeping monetary policy settings unchanged. The Monetary Board believes that sustained monetary policy support for domestic demand should help the economic recovery gain more traction, especially as risk aversion continues to temper credit activity despite ample liquidity in the financial system,” Diokno said.

“The Monetary Board also observed that economic activity has improved in recent weeks, but the overall momentum of the economic recovery remains tentative as the threat of Covid-19 infections continues,” he added.

Higher inflation

The BSP’s move to maintain the policy rates was amid their new expectations of a slightly higher inflation rate for this year.

In the same briefing, Deputy Governor Dakila said inflation is now likely to average at 4 percent for this year, up from the 3.9 percent forecast in their previous meeting. The government’s target band for the year is at 2 to 4 percent.

For next year up until 2022, Dakila said inflation is expected to hit an annual average of 3 percent.

Diokno said the continued implementation of direct non-monetary measures will be “crucial” in mitigating further supply-side pressures on meat prices and inflation.

“The risks to the inflation outlook remain broadly balanced around the baseline projection path. The uptick in international commodity prices amid supply-chain bottlenecks and the recovery in global demand could lend upside pressures on inflation,” Diokno said.

“However, downside risks to the inflation outlook continue to emanate from the emergence of new coronavirus variants, which could delay the easing of containment measures and temper prospects for domestic growth,” he added.

ING Bank economist Nicholas Mapa said the BSP will likely continue holding on to low rates as they believe economic recovery remains tentative due to Covid-19.

“With price pressures fading and inflation set to slide back within target in the coming months, we expect BSP to extend its pause for the balance of the year with a possible rate hike by the middle of next year,” Mapa said.

“Meanwhile, we expect the Philippine Peso to remain pressured in the near term on anxiety over the timing of the Fed taper with BSP likely holding off on hiking policy rates to jump-start stalling bank lending and revive the ailing economy,” he added.

Read full article on BusinessMirror

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