The Monetary Board, the policy-setting body of the Bangko Sentral ng Pilipinas, on Wednesday kept the benchmark interest rate at a record low 2 percent, on expectations that the annual increases in consumer prices will remain manageable in the next two years.
BSP Governor Benjamin Diokno, who is also the board chairman, said in an online briefing the board decided to maintain the interest rate on the BSP’s overnight reverse repurchase facility at 2 percent. The interest rates on the overnight deposit and lending facilities were also retained at 1.5 percent and 2.5 percent, respectively.
“Latest inflation forecasts indicate that inflation is likely to settle within the target range in 2021 and 2022. 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 No. 128 and 133, s. 2021, and the implementation of direct non-monetary interventions to alleviate supply constraints,” Diokno said.
“Meanwhile, the inflation forecast for 2022 is seen to remain near the mid-point of the target but has increased slightly owing in part to rising international crude oil prices,” he said.
Diokno said the risks to the inflation outlook were broadly balanced. The Monetary Board said the timely implementation of approved non-monetary measures would be crucial in mitigating further supply-side pressures on meat prices and inflation.
“At the same time, the Monetary Board expects the domestic 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,” Diokno said.
He said that improved prospects overseas should support the outlook for domestic economic activity. However, 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, he said.
“On balance, 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 maintaining an accommodative stance should quicken the economy’s transition toward a sustainable recovery.
“The BSP remains committed to deploying its full range of instruments as appropriate in support of its price and financial stability mandates,” he said.
BSP Deputy Governor Francisco Dakila said the board adjusted the inflation forecasts for 2021 and 2022, taking into account a number of factors. The forecast for 2021 was lowered to 3.9 percent from 4.2 percent made in the March 2021 meeting. For 2022, the forecast was slightly raised to 3 percent from 2.8 percent.
“For 2021, the adjustment took into account the lower inflation for March and April, the appreciation of the peso, and the GDP data in the first quarter,” Dakila said.
The gross domestic product posted a lesser decline of 4.2 percent in the first quarter compared to -8.3 percent in the fourth quarter.