Monetary Board maintains policy rate

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.

Latest baseline forecasts are broadly unchanged from the previous assessment round. Average inflation is seen to slightly exceed the upper end of the target band of 2-4 percent in 2021.

Meanwhile, inflation is projected to settle close to the midpoint of the target range in 2022 and 2023, as the recent rise in global crude oil prices, the stronger recovery in domestic economic activity, and the slight depreciation of the peso were mostly offset by the lower-than-expected inflation outturns in recent months. Inflation expectations have also remained firmly anchored to the baseline projection path.

However, the risks to the inflation outlook have shifted towards the upside for 2022 even as they remain broadly balanced for 2023.

Upside risks are mainly linked to the potential impact of weather disturbances on the prices of key food items, petitions for transport fare hikes, and the possibility of a prolonged recovery of domestic pork supply.

Strong global demand amid persistent supply-chain bottlenecks could also exert further upward pressures on international commodity prices. The uncertainties in food supply require determined reforms to improve farm productivity and competitiveness.

Meanwhile, potential delays in the lifting of domestic containment measures, as well as the emergence of more virulent COVID-19 variants, could dampen prospects for both global and domestic demand and thus temper inflationary pressures.

The Monetary Board also observed that economic growth appears to be gaining solid traction, driven by improved mobility and sentiment amid the calibrated relaxation of quarantine protocols and continued progress in the Government’s vaccination program.

Nevertheless, the Monetary Board noted that sustained measures to safeguard public health and welfare remain crucial to facilitate the recovery in investment and employment.

On balance, the sum of new data suggests that there remains scope to hold monetary policy settings steady amid a manageable inflation environment.

The Monetary Board maintains that keeping a patient hand on the BSP’s policy levers, along with appropriate fiscal and health interventions, will keep the economic recovery more sustainable over the next few quarters.

Looking ahead, the BSP will continue to prioritize providing policy 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.