THE Bangko Sentral ng Pilipinas (BSP) decided to keep its monetary policy at record-lows on Thursday despite its forecast that inflation will shoot above its target range for this year.
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 the fifth consecutive meeting where the BSP chose to retain its low and accommodative interest rate stance in an effort to support the economy amid the disruptions stemming from the global health crisis.
“The Monetary Board is of the view that the expected path of inflation and downside risks to domestic economic growth warrant keeping monetary policy settings unchanged. The Monetary Board remains keen on sustaining monetary policy support for as long as necessary in order for the momentum of economic recovery to gain more traction as well as to help boost domestic
demand and market confidence, especially as risk aversion continues to temper credit activity,” BSP Governor Benjamin Diokno said.
The BSP pushed through with maintaining monetary policy settings despite revising their inflation assumption upward for the year. BSP officials said inflation is now expected to average at 4.1 percent for 2021, missing the 2- to 4-percent target range for price growth for the year.
“Latest inflation forecasts have shifted marginally higher, reflecting the recent increase in global commodity prices and the depreciation of the peso. Average inflation is seen to settle slightly above the upper end of the target band of 2 to 4 percent in 2021,” Diokno said.
For next year up to 2023, inflation is expected to average at 3.1 percent, returning back to the midpoint of the target range.
“With the continued and timely implementation of non-monetary initiatives and reforms to mitigate supply-side pressures on meat and other food prices, inflation is projected to ease towards the midpoint of the target range in 2022 and 2023,” Diokno said.
The BSP governor also said the uptick in international commodity prices due to improving global demand amid lingering supply-chain bottlenecks could lend upside pressures to inflation. However, this is expected to be balanced out as downside risks to the inflation outlook are seen from the spread of more contagious coronavirus variants.
Diokno also said the Monetary Board observed that the reimposition of quarantine measures to stem the recent surge of Covid-19 infections could pose a risk to the ongoing economic recovery.
“To this end, targeted fiscal and health interventions, especially the acceleration of the government’s vaccination program, will be crucial in safeguarding public health and preventing deeper negative effects on the Philippine economy,” the governor said.
Rizal Commercial Banking Corporation (RCBC) economist Michael Ricafort said BSP’s latest move is key to supporting the country’s economy, especially as the recent quarantine measures, higher cases and delays in vaccination is expected to hamper the local economy’s recovery.
“More accommodative monetary policy would be a major pillar of the country’s economic recovery program that would help keep interest rates near record lows that help stimulate greater demand for loans that, in turn, help boost investments, employment, and other economic activities in the country,” Ricafort said.
Moving forward, Diokno vowed to “remain vigilant against any emerging risks” to the outlook for inflation and growth.
“The BSP stands ready to adjust its policy settings as needed to ensure price and financial stability conducive to a sustainable economic recovery,” the governor said.