The central bank wants to see more evidence that the economy will put the additional cash that is released into the financial system to good use before it eases monetary policy further, but its governor says regulators are ready to do so immediately once evidence warrants it.
As such, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the Monetary Board on Thursday decided to maintain the interest rate on its key overnight reverse repurchase facility—on which banks price their own loans—at 2.25 percent.
The interest rates on the overnight deposit and lending facilities were likewise kept at 1.75 percent and 2.75 percent, respectively.
“The Monetary Board’s decision is based on the assessment that prevailing monetary policy settings remain appropriate,” Diokno said in an online press briefing, adding that the latest baseline inflation forecasts of central bank economists show a slightly lower path within the government’s 2-4 percent target range.
“This reflects the lower-than-expected inflation in August, the moderation in global crude oil prices and the appreciation of the peso,” he said.
“The balance of risks to the inflation outlook also continues to lean toward the downside from 2020 until 2022 owing largely to the risk of potential disruptions to domestic and global economic activity amid the ongoing pandemic,” Diokno added. “Meanwhile, inflation expectations remain firmly anchored within the inflation target band.”
The central bank has so far released a total of P1.5 trillion in liquidity into the local financial system through various mechanisms, including interest rate cuts, direct loans to the national government for COVID-19 response expenses and regulatory relief measures for banks.
Since the onset of the pandemic, the regulator has cut its key interest rate by a total of 175 basis points and the banks’ reserve requirement ratio by 200 basis points.
At Thursday’s meeting, Diokno said the Monetary Board also noted that global economic activity had stabilized in recent weeks. However, uncertainty remains elevated with the resurgence of COVID-19 cases in some jurisdictions.
At the same time, the Monetary Board observed encouraging signs of recovery in domestic economic activity, supported by ample liquidity in the financial system.
“Given these considerations, the Monetary Board is of the view that a continued pause will allow prior measures by the BSP to further work their way through the economy,” Diokno said. “The gradual easing of restrictions, along with sustained efforts by the government to protect human health and livelihood, should also help lift market sentiment and aid the recovery of the economy in succeeding months.”
“Looking ahead, the BSP stands ready to deploy its full arsenal of instruments as needed in fulfillment of its mandate to maintain price and financial stability conducive to sustainable economic growth,” he added.