BSP keeps rates unchanged to help economy

MB warns inflation on the rise, revises ’21 forecast to 4.4%

The central bank on Thursday kept its key interest rates unchanged to aid economic recovery, as expected, but simultaneously warned that inflation in the Philippines is once more on the rise due to supply bottlenecks—a phenomenon that is beyond its ability to solve.

In an online briefing, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the Monetary Board (MB) decided to maintain the interest rate for overnight borrowing at 2 percent. The interest rates on the overnight deposit and lending facilities were likewise kept at 1.5 percent and 2.5 percent, respectively.

“Latest baseline forecasts indicate a higher inflation path over the policy horizon,” the central bank head said. “Average inflation is seen to settle slightly above the upper end of the target band of 2-4 percent in 2021.”

During Thursday’s meeting, the Monetary Board approved an upward adjustment in the country’s inflation rate forecast for 2021 to 4.4 percent from the previous forecast of 4.1 percent set last July.

“This reflects the impact of recent supply disruptions on food prices, which contributed in part to the higher-than-expected inflation outturn in August,” Diokno explained. “Nevertheless, inflation is projected to settle close to the midpoint of the target range in 2022 and 2023.”

The country’s chief monetary regulator said inflation expectations “remain firmly aligned with the baseline projection path.”

At the same time, the risks to the inflation outlook have tilted toward the upside for the remaining months of 2021 but remain broadly balanced for 2022 and 2023.

In particular, Diokno said upside risks may emanate from pressures on international commodity prices amid improving global demand and lingering supply-chain bottlenecks. The potential effects of weather disturbances and a possible prolonged recovery from the African swine fever outbreak could also continue to lend upside pressures on prices.

Meanwhile, downside risks are seen from the spread of more contagious coronavirus variants, as potential delays in the lifting of containment measures could further dampen prospects for global growth and domestic demand.

The Monetary Board also 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.