The Monetary Board, the policy-making body of Bangko Sentral ng Pilipinas, kept the benchmark interest rate at a record-low of 2 percent in its last meeting for the year Thursday, to support the economy that is gradually recovering from the impact of the COVID-19 pandemic.
BSP Governor Benjamin Diokno, who is also the board chairman, said in an online briefing the interest rate on the overnight reverse repurchase facility remained at 2.0 percent. The interest rates on the overnight deposit and lending facilities were also kept at 1.5 percent and 2.5 percent, respectively.
“The latest baseline forecasts for 2021 and 2022 are slightly higher from the previous assessment round owing to the higher-than-anticipated inflation outturn in November. Nevertheless, the projected inflation path remains within the inflation target band of 2-4 percent over the policy horizon,” Diokno said.
He said the average inflation was seen to settle close to the midpoint of the target range in 2023. Inflation expectations also continue to be anchored to the target level.
“The risks to the inflation outlook also continue to lean towards the upside for 2022 while remaining broadly balanced for 2023. 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,” he said.
Diokno said the strong global demand amid lingering supply-chain bottlenecks could 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,” he said.
Diokno said the emergence of new COVID-19 variants continued to pose downside risks to the outlook for growth and inflation. He said the Monetary Board observed that economic growth now appeared 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,” he said.
He said the Monetary Board was seeing enough scope to keep a patient hand on the BSP’s policy levers owing to a manageable inflation environment. At the same time, 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, he said.
“Hence, preserving ongoing monetary policy support at this juncture shall help sustain the economy’s momentum over the next few quarters,” he said.
He said the BSP would keep an eye on the potential risks to future inflation and that it was ready to respond to potential second-round effects arising from supply-side pressures, in line with its price and financial stability objectives.
The Monetary Board raised the inflation forecast for 2021 to 4.4 percent from 4.3 percent made in the Nov. 18 meeting. For 2022, the forecast was also raised to 3.4 percent from 3.3 percent. The forecast for 2023 was maintained at 3.2 percent.
Michael Ricafort, chief economist of Rizal Commercial Banking Corp., said the key policy rates would still likely be maintained at 2 percent for as long as necessary, in view of the need to continue the accommodative monetary policy to fundamentally support and sustain economic recovery prospects in the aftermath of the lockdowns earlier this year.