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Philippines: BSP keeps key rate at record low of 2%
MANILA, Philippines (Update 1, 8:08 a.m.) — The Bangko Sentral ng Pilipinas (BSP) yesterday kept interest rates at record lows for its eighth and last policy meeting for the year even as the emergence of new COVID-19 variants poses downside risks to the outlook for economic growth and inflation.
In a virtual press conference, BSP Governor Benjamin Diokno said the Monetary Board decided to maintain the interest rate on the overnight reverse repurchase facility at an all-time low of two percent.
The rates on the overnight deposit and lending facilities were likewise kept at 1.5 percent and 2.5 percent, respectively.
“On balance, the Monetary Board sees enough scope to keep a patient hand on the BSP’s policy levers owing to a manageable inflation environment. At the same time, downside risks to the economic recovery emanate from the emergence of new COVID-19 variants as well as the potential tightening of global financial conditions,” Diokno said.
The BSP chief emphasized the need to preserve the ongoing monetary policy support at this juncture to help sustain the economy’s momentum over the next few quarters.
“Nonetheless, the Monetary Board observed that economic growth now appears to be on firmer ground, supported by the government’s accelerated vaccination program and calibrated relaxation of quarantine protocols. In particular, credit activity has gradually recovered in recent months, reflecting improved business activity and market sentiment,” Diokno said.
According to the central bank, the latest baseline inflation forecasts for 2021 and 2022 are slightly higher than the previous assessment round due to the higher-than-anticipated outturn in November.
Inflation averaged 4.5 percent from January to November despite easing for three straight months to hit a four-month low of 4.2 percent in November. It peaked at 4.9 percent in July due to supply-side shocks caused by weather-related disturbances and African swine fever outbreak.
“The risks to the inflation outlook also continue to lean toward the upside for 2022 while remaining broadly balanced for 2023. Upside risks are linked mainly to the potential impact of continuing constraints on the supply of key food items and petitions for transport fare hikes,” Diokno said.
BSP Deputy Governor Francisco Dakila Jr. said the Monetary Board raised its inflation forecasts to 4.4 percent this year and to 3.4 percent next year.
Dakila said the inflation forecast for 2023 was kept at 3.2 percent.
Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the benchmark rate would still likely be maintained at the record low of two percent in the foreseeable future or for as long as necessary, in view of the need to maintain accommodative monetary policy to fundamentally support and sustain economic recovery prospects.
Source: https://www.philstar.com/business/2021/12/17/2148452/bsp-keeps-key-rate-record-low-2