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Key rates kept at record lows

LOW INTEREST RATES A general view of the Bangko Sentral ng Pilipinas (BSP) Building at Malate, Manila. The BSP announced that it has kept interest rates at record lows. PHOTO BY ENRIQUE AGACOILI

KEY interest rates were kept at historic lows on Thursday, with monetary authorities citing manageable inflation and uncertainty about domestic and global economic growth.

The Bangko Sentral ng Pilipinas' (BSP) overnight borrowing, lending and deposit rates were maintained at 2.00 percent, 1.50 percent and 2.50 percent, respectively, during the Monetary Board's first rate-setting meeting for 2023.

“On balance, the Monetary Board deems it prudent to maintain the BSP's accommodative policy stance given a manageable inflation environment and emerging uncertainty surrounding domestic and global growth prospects,” central bank Governor Benjamin Diokno said in an online briefing.

He added that the latest baseline forecasts for 2022 and 2023 showed inflation staying within the 2.0 to 4.0 percent target range.

Since the previous monetary policy meeting, however, inflation predictions have increased marginally, reflecting the impact of higher local food inflation and global oil prices. Inflation expectations have also risen somewhat but remain stable within the target area, Diokno continued.

Inflation forecasts raised

Zeno Ronald Abenoja, managing director of the BSP's Department of Economic Research, announced that the inflation forecast for this year had been increased to 3.7 percent from 3.4 percent, while that for 2023 was raised to 3.3 percent from 3.2 percent.

“The latest baseline forecasts for 2022 and 2023 show that inflation could average within the 2 [to] 4 percent target range,” Diokno said.

Pork and fish shortages in the United States, as well as the potential impact of increasing oil prices on local transportation fares, were identified as the biggest sources of upside risks.

Non-monetary measures to assure adequate supply of major food items must be maintained, Diokno said, in order to reduce supply side inflationary pressures.

At the same time, rising international oil price volatility necessitates continuous monitoring and effective steps, when necessary, to prevent any second-round effects, he continued.

Meanwhile, potential Covid-19 infections owing to possible case resurgences from new variants pose a downside risk as delays in easing containment standards could dampen domestic growth prospects, Diokno said.

“The Monetary Board also observed that the domestic economic recovery has continued to gain traction on the back of the government's ongoing vaccination program and the easing of mobility restrictions,” he added.

With regard to the global economy, rising global commodity prices, heightened geopolitical tensions and inconsistent vaccination rates among countries could hamper the prognosis for a recovery.

“Looking ahead, given the stronger signs of recovery in output growth and labor market conditions and improvements in domestic financial markets, the BSP will continue to carefully develop its plans for the eventual normalization of its extraordinary liquidity measures when conditions warrant, in keeping with our price and financial stability mandates,” Diokno said.

Capital Economics' Gareth Leather, commenting on the latest Monetary Board policy decision, said authorities would be in no hurry to tighten policy given inflation weakness and the delayed economic recovery.

“Given the outlook for inflation and growth as well as Thursday's dovish comments from the BSP, we think the policy rate will be kept at 2.00 percent throughout 2022. The consensus is for 50bps (basis points) of hikes this year,” he added.

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