The Monetary Board, the policy-making body of Bangko Sentral ng Pilipinas, kept the benchmark interest rate at a record low of 2 percent during the first policy meeting of the year on Thursday as it considered the expected “transitory” impact of the elevated inflation rate.
BSP Governor and board chairman Benjamin Diokno said in a briefing the board also retained the interest rates on the overnight deposit and lending facilities at 1.5 percent and 2.5 percent, respectively.
“The Monetary Board noted that inflation is likely to remain elevated in the coming months, reflecting the impact of supply constraints on domestic prices of key food commodities such as meat and vegetables as well as the recent uptick in international oil prices,” Diokno said.
“At the same time, the latest baseline projections show inflation returning to within the target range of 2 percent to 4 percent over the policy horizon as supply-side influences subside. The Monetary Board also noted that inflation expectations continue to be anchored within the inflation target band,” Diokno said.
Diokno said the balance of risks to the inflation outlook now appeared to be broadly balanced around the baseline path in 2021 but was seen to continue leaning toward the downside in 2022.
He said the tighter supply of meat products, owing in part to the African Swine Fever outbreak could lend further upside pressures on inflation.
“However, the ongoing pandemic may continue to pose downside risks to demand and to the inflation outlook. While recent indicators of activity and sentiment have shown some improvement, the emergence of new variants of the virus and possible delays in mass vaccination programs continue to temper prospects for economic recovery and growth,” Diokno said.
He said the Monetary Board believed that the manageable inflation outlook continued to allow the BSP to maintain an accommodative policy stance and thus complement crucial fiscal policy measures in supporting economic activity and market confidence.
“The Monetary Board likewise reiterates its support for urgent and coordinated efforts with government agencies in implementing non-monetary interventions to enable all Filipinos access to internationally competitively priced food and thereby mitigate the impact of supply-side factors on inflation,” he said.
BSP Deputy Governor Francisco Dakila said the inflation forecast for 2021 was revised upward to 4 percent from the 3.2 percent estimate made during the December 2020 policy meeting.
“The revision was indicative of the nature of the inflation pressure that comes from the supply side and therefore transitory in nature,” Dakila said.
He said the 4.2 percent inflation in January 2021, which picked up from 3.5 percent in December, would have a carryover effect to inflation in the next few months.
The board, however, reduced the previous 2.9 percent inflation forecast for 2022 to 2.7 percent, with the expectation that inflation would return to the target band.
Inflation in January accelerated to a two-year high of 4.2 percent because of the uptick in food prices and transport costs, breaching in the process the BSP’s target band for the year.
It was the fastest price increase in two years since it hit 4.4 percent in January 2019.