THE Bangko Sentral ng Pilipinas (BSP) decided to keep its monetary policy stance accommodative on Wednesday, after announcing that inflation is now likely to average within the target band for the year.
BSP Governor Benjamin Diokno announced in a virtual press briefing that the Monetary Board decided to maintain the interest rate on the overnight reverse repurchase facility at the record low 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 fourth consecutive meeting where the BSP decided to keep monetary policy rates unchanged after their aggressive monetary policy easing moves in 2020 to keep the local economy afloat at the height of the pandemic.
“The BSP affirms that maintaining an accommodative stance should quicken the economy’s transition toward a sustainable recovery. The BSP remains committed to deploying its full range of instruments as appropriate in support of its price and financial stability mandates,” Diokno said.
Inflation back to target
THE BSP also announced that its latest inflation forecasting models show that the growth of consumer prices on average for the year is now set to fall within the 2- to 4-percent target range.
In particular, the BSP revised their forecast for the year to 3.9 percent, down from the 4.2-percent forecast in their February meeting. The BSP attributed the downward revision to the impact of the lower tariff on imported pork and the lower-than-expected inflation for March and April.
BSP officials also said the continued contraction in the country’s first quarter gross domestic product (GDP) and the continued appreciation of the peso will also help push down price pressures.
For next year, however, the BSP revised their target higher from 2.8 percent to 3 percent due to the expected increase in global crude oil prices and faster economic prospects.
“On balance, the expected path of inflation and downside risks to domestic economic growth warrant keeping monetary policy settings steady. The Monetary Board believes that sustained support for domestic demand remains a priority for monetary policy, especially as risk aversion continues to hamper credit activity despite ample liquidity in the financial system,” Diokno said.
ING Bank Manila economist Nicholas Mapa said the latest move from the BSP is a reiteration of the Central Bank’s support to the local economy.
“Fading inflation pressures take off some heat on the Central Bank to tighten policy in the near term and we expect BSP to keep policy rate unchanged for the balance of the year,” Mapa said.
“The latest revision to the inflation forecast validates the current monetary stance with expectations for a rate hike set aside for now. We forecast inflation to decelerate in the coming months, with the BSP keeping the policy rate at 2 percent for the balance of the year,” it added.