BSP hikes inflation outlook anew, says monetary policy support ‘as long as necessary’

The Bangko Sentral ng Pilipinas (BSP) on Thursday again kept policy rates at record lows, vowing to sustain support for the economy to recover even as inflation is now expected to clock in faster than initially predicted.

In a virtual briefing, BSP Governor Benjamin Diokno said the Monetary Board on Thursday decided to keep rates unchanged—the overnight reverse repurchase facility at 2.00%, the overnight deposit at 1.5%, and the overnight lending facility at 2.5%.

“The Monetary Board remains keen on sustaining monetary policy support for as long as necessary in order for the momentum of economic recovery to gain more traction as well as to help boost domestic demand and market confidence, especially as risk aversion continues to temper credit activity,” Diokno said.

After five consecutive quarters in negative territory, the Philippine economy posted a historic expansion of 11.8% in the second quarter, but this was 1.3% weaker than the previous quarter.

The BSP now expects inflation at a faster rate of 4.1% this year versus its earlier outlook of 4.0%. It also hiked its outlook for both 2022 and 2023 to 3.1% from 3.0%.

“Latest inflation forecasts have shifted marginally higher, reflecting the recent increase in global commodity prices and the depreciation of the peso,” Diokno said.

Other factors considered for the revisions are concerns over the speed of arrival of imported pork, and the latest prints for the months of June and July.

Inflation clocked in at 4.1% in June, above the central bank’s target range of 2% to 4%. This then eased to 4.0% in July.

Diokno also considered the uptick in international commodity prices amid supply-chain bottlenecks as an upside risk, and the spread of the highly transmissible COVID-19 delta variant as a downside risk.

“On balance, the Monetary Board is of the view that the expected path of inflation and downside risks to domestic economic growth warrant keeping monetary policy settings unchanged,” he said.—AOL, GMA News