The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) has again left the key rate unchanged at two percent after reassessing an inflation outlook that is now tilted more to the upside for the remaining months of 2021 due to price pressures on commodity prices and supply-chain bottlenecks.
Based on recent developments, the BSP has revised inflation forecasts higher for 2021 to an average 4.4 percent from the previous (August 12) estimate of 4.1 percent. For 2022, the new forecast is 3.3 percent from the previous 3.1 percent, and for 2023, it is 3.2 percent from 3.1 percent.
For the first time in the BSP forward guidance announcements, officials named a specific month -- which is October -- where inflation will continue to be above the target range of two-four percent before starting to decelerate below the target beginning in November.
The BSP also expects inflation to surpass the five percent level this month. The inflation rate increased to 4.9 percent in July from four percent in June, bringing the seven-month average to 4.4 percent.
BSP Governor Benjamin E. Diokno said Thursday that bad weather and a “prolonged recovery” from the African Swine Fever outbreak are also upside pressures to the inflation path. The downside risks, in the meantime, comes mainly from the spread of the contagious COVID-19 Delta variant and its impact on global growth and domestic demand.
“On balance, the Monetary Board is of the view that prevailing monetary policy settings remain appropriate given the manageable inflation environment and uncertain growth outlook,” said Diokno.
BSP Deputy Governor Francisco G. Dakila Jr., who announced the latest inflation forecasts, said the main factors that led to the revision include the higher than expected inflation outturn last August –“although it can be noted that this continues to be driven by short term supply-side factors.”
“The inflation path is seen to remain above the target range up to October 2021,” said Dakila and then it will gradually settle within the target of two-four percent by November of this year.
Diokno and Dakila said the difference is that for the remaining months of 2021, risks are mostly tilted to the upside while for 2022 and 2023, the risks remain broadly balanced.
The BSP’s latest survey of private sector economists as of September, also showed that the market still have confidence that inflation expectations are properly anchored.
Analysts’ expectation of the inflation average for 2021 is 4.3 percent, up from the previous survey of 4.2 percent. For 2022 and 2023, they expect it to remain at 3.2 percent.
During Thursday’s policy meeting, the BSP also decided to maintain the interest rate on the BSP’s overnight deposit and lending facilities at 1.5 percent and 2.5 percent, respectively.
Diokno said the the Monetary Board has noted that the outlook for recovery “continues to hinge on timely measures to prevent deeper negative effects on the Philippine economy.”
“To this end, the acceleration of the government’s vaccination program and a recalibration of existing quarantine protocols will be crucial in supporting economic activity while safeguarding public health and welfare,” he said.