As it affirms its support for the economy while keeping an eye on the potential risks to future inflation, the Monetary Board yesterday decided to keep the key rates of the Bangko Sentral ng Pilipinas (BSP) steady for the ninth consecutive session.
The interest rate on the BSP’s overnight reverse repurchase facility stays 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.
In a virtual press conference yesterday, Benjamin Diokno, BSP governor, said the Monetary Board “sees enough scope to keep a patient hand on the BSP’s policy levers owing to a manageable inflation environment.”
“Downside risks to the economic recovery emanate from the emergence of new COVID-19 variants as well as the potential tightening of global financial conditions. Hence, preserving ongoing monetary policy support at this juncture shall help sustain the economy’s momentum over the next few quarters,” Diokno said.
But Diokno stressed the latest baseline inflation forecasts for 2021 and 2022 are slightly higher from the previous assessment round “owing to the higher-than-anticipated inflation outturn in November.”
Slower price rises of food and non-alcoholic beverages pulled the country’s inflation in November to 4.2 percent from 4.6 percent the previous month. But even with the decline, the average inflation, at 4.5 percent from January to November, is still above the government target range of between 2 and 4 percent.
November’s slowdown was “slightly higher than anticipated,” settling above the BSP’s forecast range for the month of between 3.3 and 4.1 percent.
For this year, inflation is still likely to breach the full-year government forecast range of between 2 and 4 percent and is now seen to settle at 4.4 percent from the previous forecast of 4.3 percent.
For next year, inflation will average at 3.4 percent, faster than the previous forecast of 3.3 percent. By 2023, inflation will slow down further to 3.2 percent.
“(For 2022) the projected inflation path remains within the inflation target band of 2-4 percent over the policy horizon. Average inflation is seen to settle close to the midpoint of the target range in 2023. Inflation expectations also continue to be anchored to the target level,” Diokno said.
He said upside risks are linked mainly to the potential impact of continuing constraints on the supply of key food items and petitions for transport fare hikes.
“Strong global demand amid lingering supply-chain bottlenecks could also exert further upward pressures on international commodity prices. The effective implementation of non-monetary interventions to ensure adequate domestic food supply must be sustained in order to mitigate potential supply-side pressures on inflation,” Diokno said.
The Monetary Board, however, said “the emergence of new COVID-19 variants continues to pose downside risks to the outlook for growth and inflation.”
“The Monetary Board observed that economic growth now appears to be on firmer ground, supported by the government’s accelerated vaccination program and calibrated relaxation of quarantine protocols. In particular, credit activity has gradually recovered in recent months, reflecting improved business activity and market sentiment,” Diokno said.
He added the BSP “stands ready to respond to potential second-round effects arising from supply-side pressures, in line with its price and financial stability objectives.”
