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Stable inflation gives BSP room to keep rates low

The Bangko Sentral ng Pilipinas said Thursday it has enough elbow room to maintain the accommodative policy stance this year as inflation rate is expected to remain manageable in the coming months.

Accommodative stance is a term in finance which refers to the strategy of reducing interest rates to stimulate economic activity.

BSP Deputy Governor Francisco Dakila said during the fourth-quarter 2020 inflation online briefing the actual average inflation rate of 2.6 percent in 2020 was within the official target range of 2 percent to 4 percent for the year.

“Inflation expectations also remain well anchored in 2021 and 2022. The BSP sees ample room to maintain accommodate policy stance in 2021 on benign inflation expectations,” said Dakila who was named officer-in-charge while BSP Governor Benjamin Diokno was on a medical leave.

The Monetary Board, the policy-making body of the BSP, decided to keep the record-low 2 percent benchmark interest rates last month, taking into account the benign inflation environment.

The interest rates on the overnight deposit and lending facilities were also retained at 1.5 percent and 2.5 percent, respectively.

Inflation, however, accelerated to a 22-month high of 3.5 percent in December from 3.3 percent in November. This was the fastest increase since the 3.8 percent registered in February 2019.

Data showed the uptrend in inflation was brought about by the increase in prices of heavily-weighted food and non-alcoholic beverages at 4.8 percent in December, up from 4.3 percent in November.

The interagency Development Budget Coordinating Committee set an inflation target range of 2 to 4 percent for 2021 to 2024.

It said the targets continued to be appropriate quantitative representations of the medium-term goal of price stability that is optimal for the country given the structure of the economy and outlook of macroeconomic conditions over the next few years.

Topics: Bangko Sentral ng Pilipinas , BSP , inflation rate
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