'Patient' BSP leaves policy rate unchanged

MANILA, Philippines (Update 1, 5:09 p.m.) — The Bangko Sentral ng Pilipinas maintained its accommodative monetary policy stance in a bid to support a hobbled economy recovering from the coronavirus pandemic.

At its meeting on Thursday, the powerful Monetary Board kept overnight borrowing rate at a historic-low of 2%, while retaining rates for deposit and lending facilities at 1.5% and 2.5%, respectively.

The policy rates have been unchanged since November 2020, when the central bank culminated an aggressive easing cycle in a bid to encourage credit growth and economic activity.  The effects of this policy action was felt only recently after bank lending snapped eight consecutive months of decline in August. 

Ahead of Thursday’s meeting, Governor Benjamin Diokno said the BSP is being “patient” and would keep the benchmark rate unchanged for a “few more quarters” since the country’s external position is robust enough to endure a capital flight while elevated inflation remains “transitory”. 

“The Monetary Board also observed 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,” Diokno said in a statement after the meeting.

“On balance, 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,” he added.

Think tanks like Oxford Economics projected the BSP will not be hiking policy rates, especially since they believe the effects of transitory inflation — emanating from food and fuel supply-side pressures — will dissipate on their own and won’t require any action from the BSP.

At a press conference, BSP Deputy Governor Francisco Dakila Jr. said the policy support needs to continue especially as economic recovery gains ground around the country.

“We can be going back to pre-covid levels of economic activity by the second half of 2022, it’s important to maintain monetary policy support. You don’t want to nip that recovery in the bud,” he said.

At the same meeting, the central bank revised its inflation forecast for this year, but left projections for 2022 and 2023 unmoved. The 2021 figures now stood at 4.3%, lower than the old projection of 4.4% due to what Dakila called “favorable outturns” in previous months. But if realized, the 2021 average would settle above the BSP’s 2-4% annual target.

For 2022 and 2023, price growth is seen averaging at 2.3% and 3.2%, respectively.

Data showed inflation in September eased to 4.8% while in October it decelerated further to 4.6%.