Philippines: No surprise as BSP keeps rates steady

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) yesterday kept its benchmark rate at an all-time low of two percent for a seventh straight meeting to allow the momentum of economic recovery to gain more traction by helping boost domestic demand and market confidence.

In a virtual press briefing, BSP Governor Benjamin Diokno said the Monetary Board also decided to maintain the interest rate on overnight deposit facility at 1.5 percent and overnight lending facility at 2.5 percent.

“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,” Diokno said.

The last time the central bank tweaked policy rates was in November last year when it delivered a surprise 25-basis-point cut.

On balance, Diokno said the Monetary Board is of the view that prevailing monetary policy settings remain appropriate given the manageable inflation environment and uncertain growth outlook.

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

The BSP chief said the acceleration of the government’s vaccination program and a recalibration of existing quarantine protocols is crucial in supporting economic activity while safeguarding public health and welfare.

Diokno said the Monetary Board noted that the risks to inflation outlook have tilted toward the upside for the remaining months of 2021 but remain broadly balanced for 2022 and 2023.

“Upside risks may 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,” Diokno added.

On the other hand, the BSP chief added 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.

BSP Deputy Governor Francisco Dakila Jr. said the Monetary Board raised its inflation forecasts to 4.4 percent instead of 4.1 percent this year.

“The main factors that led to the revision of the forecast include the higher than expected inflation outturn in August. Although it can be noted that that continues to be driven by short term supply-side factors including weather disturbances,” Dakila said.

He also cited the increase in the suggested retail prices of basic necessities and prime commodities as well as the slower than expected arrival of imported pork.

Inflation averaged 4.4 percent in the first eight months of the year after accelerating to a 32-month high of 4.9 percent in August.

Dakila said inflation is seen breaching five percent in September and is expected to ease back to within the target starting November this year.

“The inflation path is seen to remain above the target range up to October of 2021. And subsequently we expect a deceleration of the inflation path so that it should settle within target by November of this year,” Dakila said.