BSP maintains 2% policy rate
The central bank’s Monetary Board on Thursday, Feb. 17, has decided to not change the two percent rate for the overnight reverse repurchase facility given the manageable inflation path despite higher food and oil prices.
The Bangko Sentral ng Pilipinas (BSP) has put off monetary policy actions for the past 15 months. The interest rate on the overnight deposit has also been maintained at 1.5 percent and 2.5 percent for the lending rate.
BSP Governor Benjamin E. Diokno said the Monetary Board has deemed it prudent to keep its accommodative policy stance on the back of continued manageable inflation environment and “emerging uncertainty surrounding domestic and global growth prospects.”
“Given the stronger signs of recovery in output growth and labor market conditions and improvements in domestic financial markets, the BSP will continue to carefully develop its plans for the eventual normalization of its extraordinary liquidity measures when conditions warrant, in keeping with our price and financial stability mandates,” said Diokno during Thursday’s monetary policy briefing, which coincided with the first press conference of the BSP’s new Monetary Policy Report (MPR) which expanded the previous quarterly inflation report.
Based on the February MPR, the BSP has adjusted the inflation forecast for 2022 and 2023 using the revised consumer price index or CPI using the 2018 base year. For this year, the inflation forecast is 3.7 percent versus the previous 3.4 percent using the 2012 base year. For 2023, the BSP expects 3.3 percent inflation, up from the previous estimate of 3.2 percent.
BSP Managing Director Zeno R. Abenoja, who presented the MPR, said the higher inflation forecasts is attributed to higher oil and crude prices that could affect domestic prices. The assumed Dubai crude oil average for the forecasts is $83 per barrel this year which is over $10 per barrel from the previous BSP inflation assumptions in December 2021, he said.
“(But) we also expect global oil prices to ease going forward on expectations of higher supply,” Abenoja added.
Abenoja also said inflation is seen to decelerate in early 2022 but could accelerate towards the upper end of the two-four percent band in the second quarter before moving within the target range in the second half of 2022 until 2023.
BSP officials led by Diokno said that the 2022 and 2023 inflation forecasts have slightly increased but still within the two-four percent target range, while the risks to the inflation outlook continue to be tilted to the upside for this year but still broadly balanced for 2023.
“Upside risks are linked mainly to the continued shortage in domestic pork and fish supply and the possible impact of higher oil prices on transport fares,” said Diokno. These issues are addressed by non-monetary measures.
As for the downside risks to inflation outlook, this remains to be COVID-19 and threats of new variants. But, the central bank also recognizes that economic recovery is gaining traction due to the rapid deployment of vaccines and easing of mobility restrictions.
Meantime, with increased volatility in the global oil prices, the BSP said it stands ready to intervene when necessary to “arrest potential second-round effects.”