THE Bangko Sentral ng Pilipinas (BSP) decided on Thursday to keep all monetary policy rates unchanged at record-low levels amid the lower-than-expected inflation rate for this year.

In the announcement of their monetary policy setting held at Boracay, BSP Governor Benjamin Diokno said the Monetary Board decided to maintain the interest rate on the BSP’s overnight reverse repurchase facility at 2 percent.

The interest rates on the overnight deposit and lending facilities were likewise kept at 1.5 percent and 2.5 percent, respectively.

This is the eighth consecutive time that the BSP decided to keep its record accommodative monetary policy stance since it made cuts to boost the economy amid the disruptions caused by the pandemic.

“The sum of new data suggests that there remains scope to hold monetary policy settings steady amid a manageable inflation environment. 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,” the governor said.

Inflation, in particular, gave more leeway for the retained stance for the year.

Inflation forecast

In the same press conference, BSP Deputy Governor for the Monetary and Economics Sector Francisco Dakila Jr. said they have revised their inflation forecast for the country for this year to 4.3 percent from 4.4 percent in their September forecast.

While this is lower, it is still above the 2- to 4-percent target range for this year.

Dakila said the lower forecast was brought about by the tamer-than-expected inflation print in October.

By November, Dakila said inflation is expected to simmer down below 4 percent and will continue to decelerate to below 3 percent in the first quarter of next year.

For 2022 and 2023, the BSP retained its inflation forecasts at 3.3 percent for next year and 3.2 percent for 2023.

However, Diokno said the risks to the inflation outlook have shifted towards the upside for 2022.

The governor 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.

Strong global demand amid persistent supply-chain bottlenecks could also exert further upward pressures on international commodity prices.

“The BSP will 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.

This is as per the Monetary Board’s observation 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 added.

In his analysis after the BSP’s announcement, Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort said the retained monetary policy is crucial for the economy’s recovery.

“Continuation of accommodative monetary policy is a major pillar for the country’s economic recovery program from Covid-19, as this helps in keeping short-term borrowing costs relatively lower that spurs greater demand for loans that, in turn, helps in stimulating more investments as well as the creation of more jobs and generates more business and 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,” he added.

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