The Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas, on Thursday maintained the benchmark interest rate at a record low of 2 percent on manageable inflation outlook.
The policy rate is now unchanged for more than a year since November 2020, when it was last reduced by 25 percentage points.
BSP Governor and MB chairman Benjamin Diokno said 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 2022 and 2023 show that inflation could average within the 2 percent to 4 percent target range. However, the inflation projections have slightly increased from the previous monetary policy meeting, reflecting the impact of higher domestic food inflation and global oil prices,” Diokno said.
He said inflation expectations rose marginally, but continued to be anchored within the target band.
“The risks to the inflation outlook continue to lean slightly towards the upside for 2022 but remain broadly balanced for 2023. Upside risks are linked mainly to the continued shortage in domestic pork and fish supply and the possible impact of higher oil prices on transport fares,” he said.
Diokno said the implementation of non-monetary measures to ensure adequate supply of key food commodities should be sustained to mitigate supply-side pressures on inflation.
He said increased volatility in international oil prices needed close monitoring and appropriate interventions when necessary to arrest potential second-round effects.
Meanwhile, downside risks still emanate from the lingering threat of COVID-19 infections owing to possible case resurgence from new variants, as delays in the easing of containment protocols could temper domestic growth prospects, he said.
“The Monetary Board also observed that the domestic economic recovery has continued to gain traction on the back of the government’s ongoing vaccination program and the easing of mobility restrictions,” Diokno said.
He said elevated global commodity prices, heightened geopolitical tensions and the uneven pace of vaccinations across countries could dampen the outlook for global economic recovery.
“On balance, the Monetary Board deems it prudent to maintain the BSP’s accommodative policy stance given a manageable inflation environment and emerging uncertainty surrounding domestic and global growth prospects,” Diokno said.
He said that with the stronger signs of recovery in output growth and labor market conditions and improvements in domestic financial markets, the BSP would continue to carefully develop plans for the eventual normalization of extraordinary liquidity measures when conditions warrant, in keeping with its price and financial stability mandates.
The board raised the inflation forecast this year to 3.7 percent from 3.4 percent made in December. The forecast for 2023 was also slightly raised to 3.3 percent from 3.2 percent.
Michael Ricafort, chief economist of Rizal Commercial Banking Corp., said the key local policy rates would still likely be maintained at the record low of 2 percent in the foreseeable future or for as long as necessary, in view of the need to maintain accommodative monetary policy to fundamentally support and sustain economic recovery prospects.
Ricafort said this could happen “for as long as the Fed Funds Rate remains at the record low of 0.00 percent to 0.25 percent to likewise help sustain the pace of the US/global economic recovery—a delicate balancing act indeed amid the need to also better manage/control both inflation and inflation expectations at manageable and sustainable levels.”
He said the Federal Reserve became more hawkish recently, signaling more and earlier Fed rate hikes, after doubling the pace of tapering bond purchases to $30 billion per month and could end the tapering by early 2022 from the previous mid-2022.
“Going forward, any potential hike in the local policy rate would likely follow any Fed rate hikes from 2022-2024, that could start in the latter part of 2022, with the start of Fed rate hike as early as March 2022,” Ricafort said.