The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) has decided to leave the key policy rate or overnight reverse repurchase (RRP) rate unchanged on Thursday, citing continued appropriate policy settings and benign inflation.
In the same meeting, the seven-member BSP policy-making body also approved the National Government’s P540 billion provisional advances to finance the budget deficit which was higher because of its anti-COVID-19 expenses.
According to BSP Governor Benjamin E. Diokno, the Monetary Board “approved (on Thursday) the National Government’s request for a new tranche of provisional advances in the amount of P540 billion (approximately $11.1 billion), pursuant to Section 89 of Republic Act No. 7653 (the “New Central Bank” Act) as amended.”
Diokno also said that the previous advances amounting to P300 billion in March at the onset of the pandemic and start of the lockdown period, has been paid by the government. “The Bureau of Treasury (BTr) has fully settled the previous P300 billion repo on September 29 (2020),” he said. The BSP and BTr agreed on a repurchase or repo arrangement for the first provisional loan of P300 billion.
As for current policy settings, Diokno said the Monetary Board which he chairs, voted to a “no change” stance since the “continued pause will allow prior measures by the BSP to further work their way through the economy.” The policy transmission has a lag period of nine to 12 months. The benchmark rate was reduced by a total 175 basis points (bps) since February in an expansionary move in support of a recovering economy.
BSP Deputy Governor Francisco G. Dakila Jr., in the meantime, announced revised inflation forecasts for 2020 which was lower at 2.3 percent from its previous (August 20 policy meeting) projection of 2.6 percent. The inflation forecasts for 2021 and 2022 were also reduced to 2.8 percent and three percent from earlier estimates of three percent and 3.1 percent, respectively.
The BSP’s interest rates on the overnight deposit was also unchanged at 1.75 percent and 2.75 percent still for lending facilities.
Diokno said the Monetary Board has assessed that “prevailing monetary policy settings remain appropriate.” He said the latest baseline inflation forecasts for 2020 until 2022 are within the target range of two to four percent. “This reflects the lower-than-expected inflation in August (2.4 percent), the moderation in global crude oil prices, and the appreciation of the peso,” he added.
The BSP chief said the balance of risks to the inflation outlook continue to favor the downside until 2022. This is because of the “risk of potential disruptions to domestic and global economic activity amid the ongoing pandemic (but) inflation expectations remain firmly anchored within the inflation target band.”
“The Monetary Board also noted that global economic activity has stabilized in recent weeks. However, uncertainty remains elevated with the resurgence of COVID-19 cases in some jurisdictions. At the same time, the Monetary Board observed encouraging signs of recovery in domestic economic activity, supported by ample liquidity in the financial system,” said Diokno, adding that the “gradual easing of restrictions, along with sustained efforts by the government to protect human health and livelihood, should also help lift market sentiment and aid the recovery of the economy in succeeding months.”
“The BSP stands ready to deploy its full arsenal of instruments as needed in fulfillment of its mandate to maintain price and financial stability conducive to sustainable economic growth,” said Diokno.