To keep the momentum of economic recovery, the policymaking Monetary Board yesterday decided to keep the key rates of the Bangko Sentral ng Pilipinas (BSP) unchanged for the seventh straight session.
The interest rate on the BSP’s overnight reverse repurchase facility remains at 2.0 percent.
The interest rates on the overnight deposit and lending facilities were likewise kept at 1.5 percent and 2.5 percent, respectively.
Benjamin Diokno, BSP Governor, said the Board is of the view that “prevailing monetary policy settings remain appropriate given the manageable inflation environment and uncertain growth outlook.”
“The Monetary Board reiterates that, together with appropriate fiscal and health interventions, 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.
Central banks reduce interest rates to encourage borrowing and investing, thereby possibly stimulating economic growth but may hasten inflation. Rates are raised, meanwhile, when there is too much growth.
“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,” Diokno added.
Diokno also noted the outlook for 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,” Diokno said.
Latest baseline forecasts indicate a higher inflation path over the policy horizon with the average likely to settle “above the upper end of the target band of between 2 and 4 percent in 2021.”
For this year, from the previous forecast of 4.1 full-year inflation average, the Monetary Board now sees inflation to hit 4.4 percent.
For next year, the forecasts were also revised higher from 3.1 percent to 3.3 percent.
Francis Dakila, BSP Deputy Governor, said the main factors that led to the revision include the higher -than -expected inflation outturn in August “although this continues to be driven by supply-side factors including weather disturbances.”
“Inflation seemed to remain above the target range up to October of 2021 but will likely settle within target by November this year,” Dakila said.
Inflation jumped to 4.9 percent last month from 4 percent the previous month, pushed by higher food and energy prices. This brings the year-to-date average to 4.4 percent.
Diokno said the risks to the inflation outlook have “tilted towards the upside for the remaining months of 2021 but remains broadly balanced for 2022 and 2023.”
“Upside risks may emanate from pressures on international commodity prices amid improving global demand and lingering supply-chain bottlenecks. The potential effects of weather disturbances and a possible prolonged recovery from the African swine fever (ASF) outbreak could also continue to lend upside pressures on prices.”
“Downside risks are seen from the spread of more contagious coronavirus variants, as potential delays in the lifting of containment measures could further dampen prospects for global growth and domestic demand,” Diokno said.
