BSP keeps policy rates unchanged, closes 2020 at record lows

The Monetary Board (MB) of the Bangko Sentral ng Pilipinas (BSP) on Thursday decided to keep policy rates unchanged to close the year at record lows, citing the "benign" inflation environment over the policy horizon.

According to BSP Governor Benjamin Diokno, the MB decided to maintain the overnight reverse repurchase (RRP) facility at 2.00%, the overnight deposit at 1.5%, and the overnight lending facility at 2.5%.

"The Monetary Board’s decision was based on its assessment that the inflation environment remains benign," he said in a virtual briefing following the MB's policy meeting, its last for this year.

"The latest baseline forecasts have risen slightly due to the sharp increase in global crude oil prices and the higher-than-expected food inflation in November," he added.

Inflation accelerated for the second straight month to 3.3% in November, the highest since the 3% recorded in April 2019.

The Monetary Board on Thursday also revised its inflation projection for this year to 2.6% versus the 2.4% in November, and for next year to 3.2% from the 2.7% forecast during the previous policy meeting.

"However, since the rise in food prices is transitory, it is expected that the future inflation path will remain firmly within the Government’s 2-4 percent target over the policy horizon," Diokno said.

"The balance of risks to the inflation outlook also leans toward the downside from 2020 to 2022 owing largely to potential disruptions to domestic and global economic activity amid the ongoing pandemic. Meanwhile, inflation expectations remain broadly consistent with the inflation target," he added.

The governor likewise noted that even with the resurgence of COVID-19 cases globally, the delivery of vaccines has lifted market confidence and therefore supporting improved prospects for global growth.

"On the domestic front, the Monetary Board also observed early indications of improved mobility and sentiment. While recent natural calamities could pose strong headwinds to growth, the further easing of quarantine measures should help facilitate the recovery of the economy in the coming months," he said.

"Given these considerations, the Monetary Board is of the view that monetary policy settings remain appropriate. The Monetary Board believes that an accommodative monetary policy stance, together with sustained fiscal initiatives to ensure public welfare, should quicken the economy’s transition toward a sustainable recovery," he added.

The central bank has so far reduced policy rates by 200 basis points this year —25 basis points in February, 50 basis points each in March, April, and June, and another 25 basis points in November.

"Looking ahead, the BSP remains committed to deploying its full range of instruments as needed in fulfillment of its mandate to maintain price and financial stability conducive to growth," Diokno said.—LDF, GMA News