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Philippines: BSP keeps rates steady
MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) yesterday kept the benchmark interest rate at an all-time low of two percent to quicken economic recovery as the recession induced by the COVID-19 pandemic extended for five straight quarters.
In a virtual press conference, BSP Governor Benjamin Diokno said the policy-making Monetary Board decided to keep the overnight deposit rate at 1.5 percent and the overnight lending rate at 2.5 percent as the expected path of inflation and downside risks to domestic economic growth warrant keeping monetary policy settings steady.
“The Monetary Board believes that sustained support for domestic demand remains a priority for monetary policy, especially as risk aversion continues to hamper credit activity despite ample liquidity in the financial system,” he said.
Diokno said the recent surge in COVID-19 infections and the resulting measures to contain it continue to temper market confidence and pose substantial downside risks to domestic demand.
The recession extended to five quarters as gross domestic product (GDP) contracted by 4.2 percent in the first quarter.
The country has been recovering with the partial reopening of the economy since June last year, slowing down the GDP contraction from a record 16.9 percent in the second quarter last year to 11.4 percent in the third quarter and 8.3 percent in the fourth quarter.
“The Monetary Board expects the economy to continue to recover in the coming months, aided by the government’s targeted fiscal interventions and the sustained rollout of its vaccination program. Improved prospects overseas should also support the outlook for domestic economic activity,” Diokno said.
The BSP chief pointed out the latest forecasts indicate that inflation is likely to settle within the target range in 2021 and 2022.
Diokno said inflation is now projected to track a slightly lower path in 2021 to average near the upper end of the target band, as price pressures on food commodities are abating with improved weather conditions, the impact of Executive Orders 128 and 133, and the implementation of direct non-monetary interventions to alleviate supply constraints.
According to Diokno, the Monetary Board believes the timely implementation of approved non-monetary measures would be crucial in mitigating further supply-side pressures on meat prices and inflation.
For his part, BSP Deputy Governor Francisco Dakila Jr. said the Monetary Board has lowered its inflation forecast to 3.9 percent instead of 4.2 percent this year due to the impact of the lower tariff on imported pork, lower inflation for March and April, the weaker-than-expected GDP contraction in the first quarter, and the continued appreciation of the peso against the US dollar.
For 2022, Dakila said the inflation forecast was raised to three percent instead of 2.8 percent due to the impact of the increase in global crude oil prices as well as prospects for faster economic growth.
Inflation averaged 4.5 percent in the first four months of the year after logging in at 4.5 percent in April, exceeding the two to four percent target set by the BSP for 2021 and 2022.
ING Bank Manila senior economist Nicholas Mapa said the central bank is likely to keep interest rates at record lows as inflation is seen decelerating in the remainder of the year.
“With inflation set to decelerate, expect BSP to hold rates at two percent for the balance of the year to support recovery efforts,” Mapa said.
Economic managers through the Development Budget Coordination Committee (DBCC) are set to meet on May 17 to revise the 6.5 to 7.5 percent GDP growth target, taking into consideration the ongoing lockdown and quarantine restrictions.
Diokno said the BSP remains committed to deploying its full range of instruments as appropriate in support of its price and financial stability mandates.
“Looking ahead, the BSP affirms that maintaining an accommodative stance should quicken the economy’s transition toward a sustainable recovery,” he said.
Source: https://www.philstar.com/business/2021/05/13/2097784/bsp-keeps-rates-steady