At its meeting on monetary policy today, the Monetary Board decided to maintain the interest rate on the Bangko Sentral ng Pilipinas’ (BSP) overnight reverse repurchase facility at 2.0 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. Average inflation is seen to settle slightly above the upper end of the target band of 2-4 percent in 2021.
This reflects the impact of recent supply disruptions on food prices, which contributed in part to the higher-than-expected inflation outturn in August.
Nevertheless, inflation is projected to settle close to the midpoint of the target range in 2022 and 2023. Moreover, inflation expectations remain firmly aligned with the baseline projection path.
At the same time, the risks to the inflation outlook have tilted towards the upside for the remaining months of 2021 but remains broadly balanced for 2022 and 2023.
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 (ASF) 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.
On balance, the Monetary Board is of the view that prevailing monetary policy settings remain appropriate given the manageable inflation environment and uncertain growth outlook.
The Monetary Board reiterates that, together with appropriate fiscal and health interventions, keeping a steady hand on the BSP’s policy levers will allow the momentum of economic recovery to gain more traction by helping boost domestic demand and market confidence.
Going forward, the BSP will continue to closely monitor evolving conditions for any threats to the inflation target.
The BSP stands ready to take appropriate measures as necessary to ensure that the monetary policy stance remains in line with its price and financial stability mandates.
