The Monetary Board (MB) kept the Bangko Sentral ng Pilipinas’ (BSP) key policy rate—its overnight borrowing interest rate—at a record low of 2 percent, saying that inflation expectations were not deviating from the government’s target range despite rising price pressures.
BSP Governor Benjamin Diokno said on Thursday the latest baseline forecasts suggest that average inflation in 2022 could hit 4.3 percent, higher than the 3.7-percent forecast in February.
“Nevertheless, average inflation is projected to decline and settle within the target band at 3.6 percent in 2023,” Diokno said. “Inflation expectations have likewise risen but continue to be anchored to the 2-4 percent target band.”
At Thursday’s meeting, the MB also kept overnight deposit and lending facilities unchanged at 1.5 percent and 2.5 percent, respectively.
When asked whether the BSP still expects to start raising rates in the second semester of this year, Diokno said the latest assessment of recent economic data still suggested that growth was likely to return to prepandemic trajectory in the second half.
“Nevertheless, we are keenly aware that inflation is likely to remain elevated in the coming months, due mainly to domestic and global supply-side pressures,” the BSP chief said.
“Under these circumstances, it is still best to address these inflationary pressures through direct nonmonetary interventions,” he added. “At the same time, however, the BSP is prepared to act as necessary should we see stronger indications of second-round effects such as when there are already broad-based price pressures, and inflation expectations become disanchored [to the target band].”
Again, Diokno reiterated that the decisions on the policy stance will continue to depend on the data. He meant that such decisions—whether raising, lowering or keeping rates unchanged—will depend on observations rather than the actions of others outside the country.
Earlier, ING Bank’s senior economist in the Philippines Nicholas Mapa said the BSP may be on the brink of losing control and credibility in herding inflation if it did not adopt a tighter policy stance within the next three months—or before the second semester.