The Bangko Sentral ng Pilipinas (BSP) on Thursday again kept monetary policy rates at record lows in November in a bid to boost economic activity amid the COVID-19 pandemic.
At a virtual briefing, BSP Governor Benjamin Diokno said the policy-setting Monetary Board decided to keep interest rates unchanged — the overnight reverse repurchase facility at 2.00%, the overnight deposit at 1.5%, and the overnight lending facility at 2.5% — for the eighth straight month.
“The Monetary Board maintains that keeping a patient hand on the BSP’s policy levers, along with appropriate fiscal and health interventions, will keep the economic recovery more sustainable over the next few quarters,” Diokno said.
“There remains scope to hold monetary policy settings steady amid a manageable inflation environment,” he said.
Interest rates or monetary policy rates are tools used by central banks to influence money supply which keeps the economy running and at the same time keeps inflation under control.
“The Monetary Board also observed that economic growth appears to be gaining solid traction, driven by improved mobility and sentiment amid the calibrated relaxation of quarantine protocols and continued progress in the government’s vaccination program. Nevertheless, the Monetary Board noted that sustained measures to safeguard public health and welfare remain crucial to facilitate the recovery in investment and employment,” Diokno said.
The economy as measured by gross domestic product (GDP)— the total value of goods and services produced in a country in a specific period— grew 7.1% in the third quarter, a reversal from a contraction of 11.4% in the same period last year albeit lower compared to the 12% growth posted in the second quarter of 2021.
Year-to-date, the country’s GDP grew 4.9%, within the upper end of the government’s downwardly revised target band of 4% to 5% for the entire 2021.
While it expects inflation to slightly exceed the upper end of the government’s target band of 2% to 4% in 2021, the BSP has lowered its inflation outlook to 4.3% versus its earlier projection of 4.4%.
“Latest baseline forecasts are broadly unchanged from the previous assessment round,” Diokno said.
The BSP, however, kept its outlook for both 2022 and 2023 at 3.3% and 3.2%, respectively.
“Meanwhile, inflation is projected to settle close to the midpoint of the target range in 2022 and 2023, as the recent rise in global crude oil prices, the stronger recovery in domestic economic activity, and the slight depreciation of the peso were mostly offset by the lower-than-expected inflation outturns in recent months. Inflation expectations have also remained firmly anchored to the baseline projection path,” the central bank chief said.
The risks to the inflation outlook have shifted towards the upside for next year even as they remain broadly balanced for 2023, Diokno said.
“Upside risks are mainly linked to the potential impact of weather disturbances on the prices of key food items, petitions for transport fare hikes, and the possibility of a prolonged recovery of domestic pork supply,” he said.
“Strong global demand amid persistent supply chain bottlenecks could also exert further upward pressures on international commodity prices. The uncertainties in food supply require determined reforms to improve farm productivity and competitiveness,” he added.
The BSP chief said the central bank would continue to prioritize providing policy support for the economy while keeping an eye on the potential risks to future inflation.
“The BSP stands ready to respond to potential second-round effects arising from supply-side pressures, in line with its price and financial stability objectives,” Diokno said.
In an emailed commentary, Rizal Commercial Banking Corp. chief economist Michael Ricafort said that the continuation of accommodative monetary policy is a major pillar of the country's economic recovery program.
“This helps in keeping short-term borrowing/financing costs relatively lower that spurs greater demand for loans/credit that, in turn, helps in stimulating/encouraging more investments as well as the creation of more jobs/employment and generates more business/economic activities,” Ricafort said.
“Accommodative monetary policy would still do more of the heavy lifting for the economy, in view of the lack of funds for any additional stimulus measures, in view of the constraints presented by the wider budget deficit and overall debt levels in recent months due to the COVID-19 pandemic/lockdowns,” the economist said. — VBL, GMA News