BSP keeps key interest rates, already at historic lows, unchanged

MANILA, Philippines—Following a surprise jump in prices in November, the central bank on Thursday (Dec. 17) decided to keep its key interest rates unchanged at their historic lows, noting that the current inflation environment “remains benign.”

At an online press briefing, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the Monetary Board decided to maintain the interest rate on the regulator’s overnight reverse repurchase facility at 2 percent at the seven-man group’s final rate setting meeting for 2020.

The interest rates on the overnight deposit and lending facilities were likewise kept at 1.5 percent and 2.5 percent.

“The latest baseline forecasts have risen slightly due to the sharp increase in global crude oil prices and the higher-than-expected food inflation in November,” the central bank chief said.

“However, since the rise in food prices is transitory, it is expected that the future inflation path will remain firmly within the government’s 2-4 percent target over the policy horizon,” he said.

Diokno explained that the balance of risks to the inflation outlook also leans toward the downside from 2020 to 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 added.

The Monetary Board also noted that the resurgence of COVID-19 cases globally has tempered economic activity with the reimposition of preventive measures in recent weeks. However, optimism over the delivery of vaccines has lifted market confidence, supporting improved prospects for global growth.

On the domestic front, the Monetary Board also observed early indications of improved mobility and sentiment. While recent natural calamities could pose strong headwinds to growth, the further easing of quarantine measures should help facilitate the recovery of the economy in the coming months.

“Given these considerations, the Monetary Board is of the view that monetary policy settings remain appropriate,” Diokno said.

As such, the Monetary Board believes that an accommodative monetary policy stance, together with sustained fiscal initiatives to ensure public welfare, should quicken the economy’s transition toward a sustainable recovery.

“Looking ahead, the BSP remains committed to deploying its full range of instruments as needed in fulfillment of its mandate to maintain price and financial stability conducive to growth,” he said.

TSB