The Monetary Board, the policy-making body of Bangko Sentral ng Pilipinas, on Thursday kept the benchmark policy rate at a record-low of 2 percent to support the economy that is gradually recovering from the impact of the COVID-19 pandemic.
BSP Governor and board chairman Benjamin Diokno said in an online briefing the interest rates on the overnight deposit and lending facilities were also kept at 1.5 percent and 2.5 percent, respectively.
“On balance, the Monetary Board is of the view that prevailing monetary policy settings remain appropriate given the manageable inflation environment and uncertain growth outlook,” Diokno said.
“The Monetary Board reiterates that, together with appropriate fiscal and health interventions, keeping a steady hand on the BSP’s policy levers will allow the momentum of economic recovery to gain more traction by helping boost domestic demand and market confidence,” he said.
He said latest baseline forecasts indicated a higher inflation path over the policy horizon. The average inflation was seen to settle slightly above the upper end of the target band of 2 percent to 4 percent in 2021.
“This reflects the impact of recent supply disruptions on food prices, which contributed in part to the higher-than-expected inflation outturn in August. Nevertheless, inflation is projected to settle close to the midpoint of the target range in 2022 and 2023. Moreover, inflation expectations remain firmly aligned with the baseline projection path,” he said.
Diokno said the risks to the inflation outlook tilted towards the upside for the remaining months of 2021 but remained broadly balanced for 2022 and 2023.
He said upside risks might emanate from pressures on international commodity prices amid improving global demand and lingering supply-chain bottlenecks. The potential effects of weather disturbances and a possible prolonged recovery from the African Swine Fever outbreak could also continue to lend upside pressures on prices.
Meanwhile, downside risks are seen from the spread of more contagious coronavirus variants, as potential delays in the lifting of containment measures could further dampen prospects for global growth and domestic demand.
The Monetary Board noted that the outlook for recovery continued to hinge on timely measures to prevent deeper negative effects on the Philippine economy.
Diokno said to this end, the acceleration of the government’s vaccination program and a re-calibration of existing quarantine protocols would be crucial in supporting economic activity while safeguarding public health and welfare.
“Going forward, the BSP will continue to closely monitor evolving conditions for any threats to the inflation target. The BSP stands ready to take appropriate measures as necessary to ensure that the monetary policy stance remains in line with its price and financial stability man-dates,” Diokno said.
Inflation in accelerated to 4.9 percent in August from 4 percent in July. BSP Deputy Governor Francisco Dakila said in the same briefing that inflation might breach the 5-percent level in September because of weather disturbances, supply-side factors, increase in prime commodities and lower-than-expected arrival of imported pork.
“Inflation may decelerate within the target range [of 2 to 4 percent] by November 2021,” Dakila said.