Philippine central bank keeps rate at record low as economic outlook dims

[MANILA] The Philippine central bank kept interest rates at record lows on Thursday, looking past increasing inflation pressures to support an economy struggling with the fallout of recent Covid-19 curbs.

The Bangko Sentral ng Pilipinas (BSP) kept the rate on the overnight reverse repurchase facility at 2.0 per cent for the seventh straight policy meeting, as widely expected in a Reuters poll, even as it increased its inflation forecasts for this year, 2022 and 2023.

The rates on the overnight deposit and lending facilities were kept at 1.5 per cent and 2.5 per cent, respectively.

BSP governor Benjamin Diokno told a news briefing policy settings remained appropriate, with inflation pressures still manageable and the growth outlook uncertain. Inflation is running above the central bank’s 2-4 per cent target range.

“The outlook for recovery continues to hinge on timely measures to prevent deeper negative effects on the Philippine economy,” he said.

The Philippine economy came out of a recession in the second quarter but the re-imposition of strict lockdown measures from July to mid-September has clouded the outlook.

Indeed, the government cut its 2021 growth target in August to 4-5 per cent, from 6-7 per cent previously.

Some of those curbs have since been eased, with the Manila capital region shifting away from wide-scale lockdowns to localised ones from Sept 16 as it tries to contain the coronavirus while allowing some businesses to resume operations.

“The economy remains very weak, which suggests policy will need to remain loose for some time,” said Alex Holmes, an economist at Capital Economics.

He expected no further rate cuts but also believed the BSP would not raise rates until 2023 despite elevated inflation, which accelerated to 4.9 per cent in August, its highest in nearly three years.

The BSP raised its average inflation forecasts to 4.4 per cent from 4.1 per cent for this year, 3.3 per cent from 3.1 per cent for 2022, and 3.2 per cent from 3.1 per cent for 2023.