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Philippine monetary officials on Wednesday kept the Bangko Sentral ng Pilipinas’ (BSP) key policy rates steady as inflation is now expected to stay within target this and next year and domestic growth to post improvements, according to a report by Philippine News Agency.

During the virtual briefing streamed through the BSP’s Facebook page, BSP Governor Benjamin Diokno said the policy-making Monetary Board (MB) decided to maintain the key rates, with the overnight reverse repurchase (RRP) rate at a record-low 2 percent, the overnight deposit rate at 1.5 percent, and the overnight lending rate at 2.5 percent. 

Diokno said inflation forecasts for this and next year are now projected to stay within the government’s 2-4 percent target band due in part to the decline in commodities price pressures.

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He attributed the decline to non-monetary measures such as the reduction in tariff for imported pork meats, which is targeted to address supply constraints brought about by the African swine fever. 

“The risks to the inflation outlook are also broadly balanced. The Monetary Board emphasizes that the timely implementation of approved non-monetary measures will be crucial in mitigating further supply-side pressures on meat prices and inflation,” he said.

With the smaller contraction of gross domestic product (GDP) in the first quarter of this year at -4.2 percent, Diokno said the Board “expects the domestic economy to continue to recover in the coming months, aided by the government’s targeted fiscal interventions and the sustained rollout of its vaccination program.” 

“Improved prospects overseas should also support the outlook for domestic economic activity,” he said adding “recent surge in Covid-19 (coronavirus disease 2019) infections and the resulting measures to contain it continue to temper market confidence and pose substantial downside risks to domestic demand.” 

With these factors, Diokno said “the expected path of inflation and downside risks to domestic economic growth warrant keeping monetary policy settings steady.”

“The Monetary Board believes that sustained support for domestic demand remains a priority for monetary policy, especially as risk aversion continues to hamper credit activity despite ample liquidity in the financial system,” he said.

Diokno said the central bank “affirms that maintaining an accommodative stance should quicken the economy’s transition toward a sustainable recovery.”

“The BSP remains committed to deploying its full range of instruments as appropriate in support of its price and financial stability mandates,” he added. 

During the same event, BSP Deputy Governor Francisco Dakila Jr. said the Board revised down the central bank’s 2021 average inflation forecast from 4.2 percent to 3.9 percent but increased the 2022 figure from 2.8 percent to 3 percent.

He attributed the decline in this year’s average inflation forecast to the impact of the lower tariff on imported pork, the deceleration of inflation rate last March and April, the impact of the first-quarter domestic output on economic activities in the first half of the year, and the appreciation of the peso against the US dollar. 

These factors are, however, countered by the rise in global oil prices, he added.

For 2022, Dakila said the inflation forecast was affected by the rise in oil prices in the international market.

In terms of domestic output, Dakila said monetary authorities “expect this to turn positive” in the next quarter due partly to the base effect.

“But (the) recovery path is likely to be supported by the implementation of key pieces of legislation,” he added.


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