BSP keeps rates unchanged, but expects inflation to breach target in 2021

The Bangko Sentral ng Pilipinas (BSP) has decided to end the year with the key policy rates unchanged, even as it expects inflation to be above the government target for this year.

BSP Governor Benjamin Diokno on Thursday said the central bank’s Monetary Board decided to maintain policy rates — the overnight reverse repurchase facility at 2.0%, the overnight deposit facility at 1.5%, and the overnight lending facility at 2.5%.

Diokno noted that the latest baseline forecasts for this year and the next remain slightly higher, with the central bank now expecting inflation to clock in at 4.4% this year, higher than the 4.3% it earlier forecasted.

The BSP also hiked its inflation expectations for 2022 to 3.4%, faster than the initially expected 3.3%. The 2023 outlook was maintained at 3.2%.

This is also higher than the government’s inflation target of 3% ± 1% which was affirmed by the Development Budget Coordination Committee (DBCC) this week.

“Upside risks are linked mainly to the potential impact of continuing constraints on the supply of key food items and petitions for transport fare hikes,” Diokno said in a virtual briefing following the policy meeting.

“Strong global demand amid lingering supply-chain bottlenecks could also exert further upward pressures on international commodity prices,” he added.

Inflation clocked in at 4.2% in November, slower than the 4.6% recorded the previous month. This brought the year-to-date average inflation to 4.5%.

“The effective implementation of non-monetary interventions to ensure adequate domestic food supply must be sustained in order to mitigate potential supply-side pressures on inflation,” Diokno said.

In the same briefing, Diokno said the emergence of new COVID-19 variants continues to pose downside risks to the outlook for both growth and inflation, but noted that growth appears to be “on firmer ground.”

Moving forward, Diokno said the central bank would continue to support the economy while it monitors potential risks to future inflation.

“On balance, the Monetary Board sees enough scope to keep a patient hand on the BSP’s policy levers owing to a manageable inflation environment,” he said.

“At the same time, downside risks to the economic recovery emanate from the emergence of new COVID-19 variants as well as the potential tightening of global financial conditions.” —KBK, GMA News