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Philippines: BSP keeps interest rates steady
MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) decided to maintain interest rates amid the benign inflation environment, to allow previous aggressive monetary actions to work their way through the economy as encouraging signs of recovery in domestic activity emerge despite the ongoing coronavirus disease 2019 or COVID-19 pandemic.
BSP Governor Benjamin Diokno said the central bank’s Monetary Board kept the overnight reverse repurchase rate steady at a record low of 2.25 percent, the overnight deposit rate at 1.75 percent, and the overnight lending rate at 2.75 percent.
“The Monetary Board’s decision is based on the assessment that prevailing monetary policy settings remain appropriate,” Diokno added.
The BSP chief said the policy setting body noted that the global economic activity has stabilized in recent weeks, but uncertainty remains elevated with the resurgence of COVID-19 cases in some jurisdictions.
“At the same time, the Monetary Board observed encouraging signs of recovery in domestic economic activity, supported by ample liquidity in the financial system,” Dioko said.
The Philippines slipped into recession, with the gross domestic product (GDP) contracting by a record 16.5 percent in the second quarter from 0.7 percent in the first quarter, as the entire Luzon was placed under enhanced community quarantine in the middle of March to contain the spread of the deadly COVID-19.
Diokno said latest baseline inflation forecasts show a slightly lower path within the central bank’s two to four percent target range, reflecting the lower-than-expected inflation in August, the moderation in global crude oil prices, and the appreciation of the peso.
“The balance of risks to the inflation outlook also continues to lean toward the downside from 2020 until 2022 owing largely to the risk of potential disruptions to domestic and global economic activity amid the ongoing pandemic. Meanwhile, inflation expectations remain firmly anchored within the inflation target band,” Diokno added.
BSP Deputy Governor Francisco Dakila Jr. said the Monetary Board has revised downward the inflation forecasts until 2022 due to the lower than expected inflation in August, strong peso, and decline in global oil prices.
Dakila said the BSP now expects inflation to average 2.3 percent instead of 2.6 percent this year, 2.8 percent instead of three percent in 2021, and three percent instead of 3.1 percent for 2022.
Monetary authorities believe a continued pause will allow prior measures by the BSP to further work their way through the economy.
Diokno said the gradual easing of restrictions, along with sustained efforts by the government to protect human health and livelihood, should also help lift market sentiment and aid the recovery of the economy in succeeding months.
“Looking ahead, the BSP stands ready to deploy its full arsenal of instruments as needed in fulfillment of its mandate to maintain price and financial stability conducive to sustainable economic growth,” the BSP chief concluded.
Nicholas Mapa, senior economist at ING Bank Manila, said the central bank believes the price pressures would remain subdued over the policy horizon with risks to the outlook tilted to the downside.
“We do not expect BSP to adjust monetary policy in the near term given that the real policy rate remains negative with headline inflation at 2.4 percent,” Mapa said.
According to Mapa, investors had priced in a pause from the BSP as Governor Diokno signaled that monetary policy would likely be accommodative for at least two years, with the economy currently recovering from the fallout from COVID-19 pandemic.
Source: https://www.philstar.com/business/2020/10/02/2046520/bsp-keeps-interest-rates-steady