BSP keeps key rate on hold at 2%

Published June 24, 2021, 5:26 PM

by Lee C. Chipongian

The Bangko Sentral ng Pilipinas (BSP) has decided to keep its benchmark overnight rate at two percent during Thursday’s fourth Monetary Board policy meeting for the year because economic recovery remains “tentative” in terms of momentum, said BSP Governor Benjamin E. Diokno.


“(The) economic activity has improved in recent weeks, but the overall momentum of the economic recovery remains tentative as the threat of COVID-19 infections continues,” said Diokno in an online briefing. He continues to have confidence though, that the government will accelerate its vaccination program to “boost market confidence and recovery of the economy in the coming months.”

BSP Deputy Governor Francisco G. Dakila Jr. said inflation forecasts have been revised higher to four percent for 2021 and three percent for 2022. He also announced that for 2023, they also estimate an average inflation of three percent.

The inflation forecasts are higher than the previous May 13 projection of 3.9 percent for 2021 and 2.9 percent for 2022. This is the first time that the BSP announced its 2023 inflation forecast of three percent.

According to Dakila, the factors that led to the forecast revisions in 2021 and in 2022 were higher because of the global crude oil prices and the more favorable global growth outlook.

“These factors were partly offset by the lower-than-expected outturn in May inflation and continued strength of the peso,” he said.

Dakila also added that for 2023 – “we are likewise seeing that inflation will lie comfortably within the target band and actually at the midpoint of the target at three percent.”

Based on the BSP’s latest inflation forecasts, the average inflation could settle near the upper end of the two-four percent target this year, hence the four percent forecast.

It also expects that average inflation will ease towards the midpoint of the target range in 2022 and 2023. “Price pressures on food commodities have abated with favorable weather conditions and the facilitation of meat imports to augment domestic supply,” noted Diokno. The implementation of the government’s direct non-monetary measures “will be crucial in mitigating further supply-side pressures on meat prices and inflation,” he added.

In the meantime Diokno said that the inflation path and downside risks to economic growth “warrant keeping monetary policy settings unchanged” and that

“sustained monetary policy support for domestic demand should help the economic recovery gain more traction, especially as risk aversion continues to temper credit activity despite ample liquidity in the financial system.”

Upside inflation pressures continue to come from international commodity price increases amid supply-chain bottlenecks, and the rise in global demand. Downside risks, on the other hand, come from the threat of new COVID-19 variants which will again force the government to implement stricter lockdown measures that will curtail economic activity.

Diokno said the BSP however affirms its “support to the economy for as long as necessary to ensure its strong and sustainable recovery”. He also said that the BSP “will remain vigilant against any emerging risks to the outlook for inflation and growth and will adjust its policy settings as needed.”

While the BSP’s overnight reverse repurchase facility remains at two percent, the interest rates on the overnight deposit and lending facilities were also steady 1.5 percent and 2.5 percent, respectively.

The BSP policy rate has remained at two percent for the last four policy meetings.

There are eight Monetary Board policy meetings in a year. The next meeting, its fifth one, is on August 12.