At its meeting on monetary policy today, the Monetary Board decided to maintain the interest rate on the BSP’s overnight reverse repurchase facility at 2.0 percent. The interest rates on the overnight deposit and lending facilities were likewise kept at 1.5 percent and 2.5 percent, respectively.
The latest baseline forecasts for 2022 and 2023 show that inflation could average within the 2-4 percent target range. However, the inflation projections have slightly increased from the previous monetary policy meeting, reflecting the impact of higher domestic food inflation and global oil prices. Inflation expectations have likewise risen marginally but continue to be anchored within the target band.
The risks to the inflation outlook continue to lean slightly towards the upside for 2022 but remain broadly balanced for 2023. Upside risks are linked mainly to the continued shortage in domestic pork and fish supply and the possible impact of higher oil prices on transport fares. The implementation of non-monetary measures to ensure adequate supply of key food commodities must be sustained in order to mitigate supply-side pressures on inflation.
At the same time, increased volatility in international oil prices warrants close monitoring and appropriate interventions when necessary in order to arrest potential second-round effects. Meanwhile, downside risks still emanate from the lingering threat of COVID-19 infections owing to possible case resurgence from new variants, as delays in the easing of containment protocols could temper domestic growth prospects.
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. However, elevated global commodity prices, heightened geopolitical tensions, and the uneven pace of vaccinations across countries could dampen the outlook for global economic recovery.
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. 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. (BSP)
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