Business

Interest rates untouched as BSP sees signs of economic recovery

MANILA, Philippines – The Philippine central bank kept its key interest rates unchanged on Thursday (June 24), pointing to encouraging signs that the country’s ultra-loose monetary policy regime is helping the economy recover from its deepest post-war decline.

At an online press conference, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the Monetary Council decided to maintain the daily lending rate – which banks use to price their own loans – at 2 percent.

The interest rates on overnight deposit and lending facilities were also kept at 1.5 per cent and 2.5 per cent, respectively.

“The Monetary Council also noted that economic activity has improved in recent weeks, but the overall momentum of the economic recovery remains tentative as the threat of COVID-19 infections continues,” the BSP chief said, explaining the decision, which market generally expected monitors.

“Nevertheless, the sustained implementation of targeted fiscal initiatives as well as the acceleration of the government’s vaccination program should help increase market confidence and the recovery of the economy in the coming months,” Diokno said.

According to Diokno, recent inflation forecasts showed that average inflation is likely to settle near the upper end of the target range of 2-4 percent in 2021.

The BSP expects average inflation to decline towards the midpoint of the target range in 2022 and 2023.

“The price pressure on food has eased with favorable weather conditions and the facilitation of meat imports to increase domestic supply,” he said. According to Diokno, the Monetary Council is the continued belief that the implementation of non-monetary measures was crucial in tackling supply bottlenecks that could cause inflation.

The BSP chief said risks to the inflation outlook remain “largely balanced” around the baseline projection path. An increase in international commodity prices amid bottlenecks in the supply chain and the recovery in global demand may lead to upward pressure on inflation.

However, downward risks to the inflation outlook continue to increase from the emergence of new coronavirus variants, which may delay the easing of containment measures and temper the outlook for domestic growth.

“All in all, the expected path to inflation and downward risks to domestic economic growth justify keeping monetary policy settings unchanged,” Diokno said.

“Monetary Board believes that sustained monetary policy support for domestic demand should help the economic recovery gain traction, especially as risk value continues to dampen credit activity despite ample liquidity in the financial system,” he added.

TSB

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