BSP rates unmoved, inflation target hiked

by Lawrence Agcaoili (The Philippine Star), 13 Aug 2021

MANILA, Philippines — Interest rates remained at record lows as the Bangko Sentral ng Pilipinas (BSP) continued to maintain an accommodative monetary policy stance until the economy fully recovers from the pandemic-induced recession.

BSP Governor Benjamin Diokno said in a virtual press conference the Monetary Board decided to maintain the interest rate on overnight reverse repurchase facility at an all-time low of two percent, on overnight deposit facility at 1.5 percent and overnight lending facility at 2.5 percent.

Diokno said monetary authorities believe the expected path of inflation and downside risks to domestic economic growth warrant keeping monetary policy settings unchanged.

“The Monetary Board remains keen on sustaining monetary policy support for as long as necessary in order for the momentum of economic recovery to gain more traction as well as to help boost domestic demand and market confidence, especially as risk aversion continues to temper credit activity,” the BSP chief said.

BSP Deputy Governor Francisco Dakila Jr. said the Monetary Board raised anew its inflation forecast to 4.1 percent instead of 3.9 percent this year.

“For 2021, there can be a very slight breach of the meeting of the target, but these are due to temporary supply-side factors,” he said.

Dakila said the inflation forecasts were adjusted slightly higher due to the rising crude oil and non-oil prices, further weakening of the peso against the dollar, and the delay in the arrival of pork imports.

Inflation averaged 4.4 percent from January to July, exceeding the BSP’s two to four percent target. It peaked at 4.7 percent in February before easing back to the target range at four percent in July from 4.1 percent in June.

Diokno said that the reimposition of hard lockdown in the National Capital Region and nearby provinces from Aug. 6 to 20 due to the spread of the more contagious Delta virus variant could derail the impending recovery.

“The Monetary Board also observed that the reimposition of quarantine measures to arrest the recent wave of COVID-19 infections could pose a risk to the ongoing economic recovery. To this end, targeted fiscal and health interventions, especially the acceleration of the government’s vaccination program, will be crucial in safeguarding public health and preventing deeper negative effects on the Philippine economy,” Diokno said.

The BSP chief said delays in the lifting of containment measures could further dampen prospects for global growth and domestic demand.

Despite the uptick in international commodity prices due to improving global demand amid lingering supply-chain bottlenecks that could lend to upside price pressures, Diokno said the risks to the inflation outlook remain broadly balanced over the policy horizon.

Diokno added downside risks to the inflation outlook are also seen from the spread of the more contagious COVID-19 variants as well as the continued and timely implementation of non-monetary initiatives and reforms to mitigate supply-side pressures on meat and other food prices.

Going forward, Diokno reiterated the BSP would remain vigilant against any emerging risks to the outlook for inflation and growth.

“The BSP stands ready to adjust its policy settings as needed to ensure price and financial stability conducive to a sustainable economic recovery,” he added.