The central bank on Thursday (Aug 20) kept its key interest rates unchanged — in line with market expectations — saying the Philippine economy needed time to digest the P1.3 trillion in liquidity it has already sunk into the financial system since the start of the coronavirus pandemic.
Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the regulator decided to maintain the interest rate on its overnight reverse repurchase facility at 2.25 percent, while the interest rates on the overnight deposit and lending facilities were likewise kept at 1.75 percent and 2.75 percent.
“The Monetary Board’s decision was based on its assessment that the inflation environment remains benign,” he said at an online press briefing.
“While latest baseline forecasts have risen slightly due to the higher-than-expected inflation in July and recent increases in global crude oil prices, the future inflation path remains firmly within the government’s 2-4 percent target,” he added.
Diokno described the balance of risks to the inflation outlook as “leaning toward the downside from 2020 until 2022”, owing largely to potential disruptions to domestic and global economic activity amid the ongoing pandemic.
“Meanwhile, inflation expectations remain broadly consistent with the inflation target,” he assured.
During its meeting on Thursday, the Monetary Board noted that the outlook for global economic growth remained subdued and uncertain amid a resurgence in COVID-19 cases in many areas.
The seven-member group also noted the sharp contraction in domestic output in the first half of 2020, reflecting the impact of the enforcement of necessary measures to contain the spread of the virus in the country.
At the same time, Diokno said the Monetary Board “observed early signs of recovery in domestic economic activity with the gradual easing of lockdown restrictions, supported by ample liquidity in the financial system.”
“Given these considerations, the Monetary Board is of the view that monetary policy settings remain appropriate for the time being,” the central bank chief said.
He added that “a prudent pause” will enable the cumulative 175-basis-point reduction in the policy rate as well as other monetary and regulatory relief measures by the BSP to fully work their way through the economy, even as the national government continues to implement interventions to bolster economic activity and protect human lives and livelihoods.
“Going forward, the BSP remains committed to deploying its full range of instruments as needed in fulfillment of its mandate to promote non-inflationary and sustainable growth over the medium term,” he said.