Monetary Board holds policy settings steady

At its meeting on monetary policy today, the Monetary Board decided to maintain the interest rate on the Bangko Sentral ng Pilipinas’s (BSP) overnight reverse repurchase facility at 2.0 percent. The interest rates on the overnight deposit and lending facilities were likewise kept at 1.5 percent and 2.5 percent, respectively.

The latest baseline forecasts for 2021 and 2022 are slightly higher from the previous assessment round owing to the higher-than-anticipated inflation outturn in November.

Nevertheless, the projected inflation path remains within the inflation target band of 2-4 percent over the policy horizon. Average inflation is seen to settle close to the midpoint of the target range in 2023. Inflation expectations also continue to be anchored to the target level.

The risks to the inflation outlook also continue to lean towards 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.

Strong global demand amid lingering supply-chain bottlenecks could also exert further upward pressures on international commodity prices.

The effective implementation of non-monetary interventions to ensure adequate domestic food supply must be sustained to mitigate potential supply-side pressures on inflation.

Meanwhile, the emergence of new COVID-19 variants continues to pose downside risks to the outlook for growth and inflation.

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.

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. Hence, preserving ongoing monetary policy support at this juncture shall help sustain the economy’s momentum over the next few quarters.

Looking ahead, the BSP affirms its support for the economy while keeping an eye on the potential risks to future inflation.

The BSP stands ready to respond to potential second-round effects arising from supply-side pressures, in line with its price and financial stability objectives.