The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) decided on Wednesday (May 12) to maintain its two percent interest rates on the overnight deposit and lending facilities while revising inflation outlook lower as food price pressures have eased.
BSP Governor Benjamin E. Diokno, also the Monetary Board chairman, said that the decision to keep its policy stance as is was based on the improved weather conditions which tempered food prices, the impact of Executive Orders No. 128 and 133, and the government’s direct non-monetary interventions to address supply constraints.
“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.
The BSP revised its inflation outlook lower from its last numbers in March.
“Latest inflation forecasts indicate that inflation is likely to settle within the target range in 2021 and 2022,” said Diokno, adding that inflation “is now projected to track a slightly lower path in 2021 to average near the upper end of the target band (while) 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.”
BSP Deputy Governor Francisco G. Dakila Jr. announced the BSP’s latest inflation forecasts of 3.9 percent for 2021, which was lower than its March 25 estimate of 4.2 percent. For 2022, they now see 2.8 percent inflation versus its three percent forecast previously.
Dakila said that factors that led to the 2021 inflation projection going back to within the two-four percent target range include the impact of lower tariffs on imported pork and the lower-than-expected inflation results for the months of March and April.
“(The) impact of the first quarter GDP outturn (of 4.2 percent contraction) and the implications of that on economic activity for the first half (of 2021) as well as continued apreciation of the peso” were also factored in its latest inflation forecasts, said Dakila.
He also said that there are other factors that moderated the downward influences on inflation such as higher global oil and non-oil prices.
“For next year, the inflation forecast was adjusted higher by 0.02 percent, so it’s squarely at the midpoint of the target band (two-four percent) and this can be attributed to the impact of increases in global crude oil price and faster prospects for domestic economic growth for next year,” said Dakila.
The BSP’s interest rates on the overnight deposit and lending facilities are still at 1.5 percent and 2.5 percent, respectively.
Diokno said the risks to the inflation outlook remained broadly balanced.
“The Monetary Board emphasizes that the timely implementation of approved non-monetary measures will be crucial in mitigating further supply-side pressures on meat prices and inflation,” he said.
“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. Improved prospects overseas should also support the outlook for domestic economic activity, said Diokno. “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.”
“On balance, the expected path of inflation and downside risks to domestic economic growth warrant keeping monetary policy settings steady,” added Diokno.
This is the third policy meeting in a row where the Monetary Board did not move its benchmark rate. The last time the BSP changed its monetary policy setting was November 19, 2020 when it cut the key rate by 25 basis points to two percent.