A possible sooner-than-expected policy rate hike in 2022 has been speculated in past weeks to curb inflation which exceeded the BSP’s forecast for the month of November. The 11-month inflation is 4.5 percent, higher than BSP’s latest forecast of 4.3 percent for this year.
“The BSP is still of the view that the prudent maintenance of monetary policy will help sustain the momentum of economic recovery (but) the latest forecast in better-than-expected recovery prospects opened the possibility of initiating further discussion on the strategy and timeline for the gradual normalization of the extraordinary pandemic era measures in the BSP policy settings,” said Diokno during his weekly online press chat on Thursday, Dec. 9.
Diokno also said that “policy adjustments can be considered should inflationary risks pose a threat to the inflation target and the de-anchoring of inflation expectations. At this point, the BSP remains committed to providing the appropriate policy support to ensure a sustainable path to economic recovery.”
Although the increase in prices is expected to slow in the coming years, upside risks to the inflation outlook remain as firms expect supply disruptions to persist until the second half of 2022, he added.
“There’s no change in our policy. We will continue to monitor international and domestic developments. I don’t think there are any more recent developments that will change our position at the moment,” Diokno added. The Monetary Board will hold its last monetary policy-setting meeting on Dec. 16.
The BSP chief said the fourth quarter GDP growth will likely be at least seven percent which will ensure an above-target growth of more than five percent for 2021. The year-to-date growth, after the third quarter’s 7.1 percent expansion, is 4.9 percent, very near the four-five percent government target.
“It stands to reason that the fourth quarter will be higher, maybe around at least seven percent. And for next year we expect the economy to grow between seven to nine percent. Now we have a new forecast for 2024 because for 2023 our forecast is 6-7 percent, and for 2024 (it’s) also 6-7 percent,” said Diokno.
Based on the BSP’s latest assessment, the full-year growth outlook for 2021 and 2022 have been revised upwards and Diokno said this reflects the higher-than-expected third quarter 2021 growth figure as well as the easing of lockdown measures in Metro Manila and the whole country.
“In addition, election-related spending as well as improvements in external demand boosted by stronger outlook in the country’s major trading partners are expected to contribute to domestic economic activity in 2022. Meanwhile, the inflation projection path is expected to be within the two-four percent target range for 2022, 2023 and 2024,” said Diokno.
During the press briefing, Diokno said conditions contributing to supply chain issues may diminish as some economies slowly recover to pre-pandemic activities.
“Amid a challenging global economic environment, the BSP will continue to be vigilant in monitoring the potential inflationary risks that may arise from supply shortages while providing the appropriate policy support to help ensure a sustainable path to economic recovery,” he said.
Diokno also noted that the emergence of the Omicron variant of COVID-19 “may further prolong the supply chain disruptions as some governments reimpose mobility restrictions to curb the spread of infections.”
“However, as the economy is still in the nascent recovery phase, the pass-through to domestic prices appears limited as indicated by the path of underlying inflation,” he also said.
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