Following its assessment that prevailing monetary policy settings remain appropriate, the Monetary Board yesterday decided again to maintain the interest rate on the Bangko Sentral ng Pilipinas’ overnight reverse repurchase (RRP) facility at 2.25 percent.
The interest rates on the overnight deposit and lending facilities were likewise kept at 1.75 percent and 2.75 percent, respectively.
The Monetary Board said the latest baseline inflation forecasts show a slightly lower path within the government’s 2 to 4 percent target range.
From the previous forecast of 2.6 percent average inflation for 2020, the Monetary Board yesterday reduced this to 2.3 percent.
Inflation forecasts for the next two years were likewise reduced. From 3 percent for 2021, the forecast now stands at 2.8 percent and from 3.1 percent for 2022, the forecast was lowered to 3 percent.
Benjamin Diokno, BSP Governor, said the new forecasts “reflect the lower-than-expected inflation in August, the moderation in global crude oil prices, and the appreciation of the peso.”
“The balance of risks to the inflation outlook continues to lean toward the downside from 2020 until 2022 owing largely to the risk of potential disruptions to domestic and global economic activity amid the ongoing pandemic. Meanwhile, inflation expectations remain firmly anchored within the inflation target band,” Diokno said.
For September, Diokno projects inflation to settle within the 1.8 – 2.6 percent range from 2.4 in August.
“Lower rice and oil prices as well as Meralco power rates, along with the continued appreciation of the peso are expected to be the primary sources of downward price pressures for the month,” Diokno said, adding that these could be partly offset by the slightly higher price of LPG.
The Monetary Board also noted that global economic activity has stabilized in recent weeks.
However, Diokno stressed “uncertainty remains elevated with the resurgence of COVID-19 cases in some jurisdictions.”
“At the same time, the Monetary Board observed encouraging signs of recovery in domestic economic activity, supported by ample liquidity in the financial system,” he added.
Given these considerations, Diokno said the Monetary Board sees that “a continued pause will allow prior measures by the BSP to further work their way through the economy.”
“The gradual easing of restrictions, along with sustained efforts by the government to protect human health and livelihood, should also help lift market sentiment and aid the recovery of the economy in succeeding months,” Diokno added.
The Monetary Board has reduced the key rates of the BSP by a total of 175 since the start of the various lockdown measures in March to combat COVID-19.
It has also reduced the reserve requirement ratios of universal and commercial banks as well as non-bank financial institutions with quasi-banking functions by 200 basis points; suspended the term deposit facility auctions for certain tenors; reduced the term spread on the peso rediscounting loans relative to the overnight lending rate to zero; and, relaxed various regulations pertaining to compliance reporting, calculation of penalties on required reserves, and single borrower limits.
These moves are all meant to help the economy combat the negative effects of COVID-19.
Nicholas Mapa, ING Bank senior economist, said he does not expect BSP to adjust monetary policy in the near term given that the real policy rate remains negative.
“The central bank believes the price pressures will remain subdued over the policy horizon with risks to the outlook tilted to the downside. To date, BSP estimates it has released up to P1.5 trillion into the financial system, helping keep borrowing costs floored to aid in the recovery,” Mapa said. (J. Calapati)