The Bangko Sentral ng Pilipinas (BSP) kept its key interest rates steady on Thursday as monetary authorities still see the country’s inflation environment as benign.
Overnight borrowing, lending and deposit rates remained at 2.00 percent, 1.50 percent and 2.50 percent, respectively, after the central bank’s policymaking Monetary Board held its eighth and last rate-setting policy meeting for 2020.
“The Monetary Board’s decision was based on its assessment that the inflation environment remains benign,” BSP Governor Benjamin Diokno told a virtual briefing.
The sharp increase in global crude oil prices and the higher-than-expected food inflation in November raised the latest baseline forecasts of the Bangko Sentral, he said.
Headline inflation hit a 20-month high of 3.3 percent in the 11th month on account of higher food prices and non-alcoholic drinks. It was faster than October’s 2.5 percent and 1.3 percent from a year earlier, and the fastest since March 2019’s 3.3 percent.
Bangko Sentral Deputy Governor Francisco Dakila Jr. said the central bank raised its inflation forecast from 2.4 percent to 2.6 percent for 2020 and from 2.7 percent to 3.2 percent for 2021. The 2022 outlook remained at 2.9 percent.
Emphasizing that the rise in food prices is temporary, Diokno said the future inflation path would remain firmly within the government’s 2- to 4-percent target.
“The balance of risks to the inflation outlook also leans toward the downside from 2020 to 2022, owing largely to potential disruptions to domestic and global economic activity amid the ongoing pandemic,” he added.
The BSP chief also said monetary authorities also factored in the resurgence of coronavirus disease 2019 cases globally, prompting containment measures to tighten, tempering economic activity.
“However, optimism over the delivery of vaccines has lifted market confidence, supporting improved prospects for global growth,” he added.
Diokno said the Monetary Board also observed early indications of improved mobility and sentiment in the Philippines. While recent natural calamities — referring to typhoons that hit last month, including “Quinta” (international name: Molave), “Rolly” (Goni) and “Ulysses” (Vamco) — could pose strong headwinds to growth, the further easing of quarantine measures should help facilitate the recovery of the economy in the coming months.
“Given these considerations, the Monetary Board is of the view that monetary policy settings remain appropriate,” he stressed.
Despite the BSP’s decision to retain current rates, Capital Economics’ Alex Holmes believes monetary policy easing is far from over.
“We don’t think the recent rise in inflation…will stop the bank from further easing,” he said in a comment, explaining that the acceleration was due to weather-related factors that should soon unwind.
While higher oil prices would push up the headline rate next early year, Holmes said the weakness of the economy would keep underlying price pressures subdued and inflation should stay within the central bank’s target band.