The Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas, on Thursday kept the benchmark interest rate at a record-low of 2 percent, taking into account the expected transitory impact of the higher inflation rate.
BSP Governor Benjamin Diokno said in an online briefing the Monetary Board decided to maintain the interest rate on the BSP’s overnight reverse repurchase facility at 2 percent, the overnight deposit at 1.5 percent and lending facilities at 2.5 percent.
“The Monetary Board noted the latest inflation forecasts had shifted higher over the policy horizon. Inflation may breach the upper end of the target range of 2 percent to 4 percent in 2021, reflecting the impact of supply-side constraints on domestic prices of key food commodities such as meat as well as the continuing uptick in international oil prices,” Diokno said.
“Nevertheless, inflation is still seen to return within the target band [of 2 to 4 percent] in 2022 as supply-side influences subside,” Diokno said.
Meanwhile, he said the balance of risks to the inflation outlook remained broadly balanced around the baseline path in 2021 while leaning toward the downside in 2022. Tighter domestic supply of meat
products and improved global economic activity could lend further upside pressures on inflation.
Diokno said, however, the lingering pandemic continued to pose downside risks to the inflation outlook, as the recent surge in virus infections and challenges over mass vaccination programs tempered prospects for domestic demand.
“Given these considerations, the Monetary Board is of the view that prevailing monetary policy settings remain appropriate to support the government’s broader efforts to facilitate the recovery of the economy,” Diokno said.
The Monetary Board said the timely implementation of non-monetary interventions was crucial in
mitigating the impact of supply-side pressures on inflation and thereby preventing them from spilling over as second-round effects.
“The BSP will remain watchful for any signs of inflation becoming broader based. The BSP is prepared to take immediate measures as appropriate to ensure that the monetary policy stance continues to support the BSP’s price and financial stability objectives,” Diokno said.
Inflation in February accelerated to a 26-month high of 4.7 percent from 4.2 percent in January, driven by higher prices of food and non-alcoholic beverages.
This was the fastest increase in consumer prices in more than two years since it hit 5.1 percent in December 2018. This was also significantly faster than the 2.6 percent in February 2020.
The latest reading brought the average inflation in the first two months to 4.45 percent, beyond the government’s target range of 2 percent to 4 percent for the year.
BSP Deputy Governor Francisco Dakila said in the same briefing that the higher inflation outturn in February compelled the board to revise upward the inflation forecast this year to 4.2 percent from the previous estimate of 4 percent.
The inflation forecast for 2022 was also raised to 2.8 percent from the previous estimate of 2.7 percent.
Dakila said the BSP also considered the rising global oil prices.
Dakila, however, downplayed the possibility of inflation rate hitting 5 percent or higher during the year.
“The 4.2 percent forecast for 2021 is still far from 5 percent. Our inflation path will be below 5 percent for the entire year,” Dakila said.
Moody’s Analytics, which operates independently of the Moody’s Investors Service credit rating agency, said earlier the central bank would “opt to preserve ammunition for now and stall a rate cut until the next quarter if the domestic situation deteriorates.”
It said the near-term prospects remained worrisome for the Philippines as it coped with an intensifying virus outbreak.