“We maintain that the BSP will be one of the few central banks in the region that will remain on the sidelines next year, leaving rates unchanged,” Pantheon Macroeconomics senior Asia economist Miguel Chanco said, reacting to the latest announcement.
Metro Manila (CNN Philippines, December 16) — The Bangko Sentral ng Pilipinas (BSP) left interest rates unchanged this entire year in line with its efforts to support economic recovery by encouraging borrowing activity.
BSP Governor Benjamin Diokno announced on Thursday the Monetary Board’s decision to keep policy rates at their record 2% low in its last meeting for 2021.
This marks the body’s ninth straight meeting since the surprise rate cut in November last year.
The Board also raised inflation forecasts for 2021 and 2022 with November’s rate – while slower than the month prior – breaching the central bank’s projection range.
Economic output expanded by 7.1% in the third quarter, beating expectations. This, coupled with the further relaxation of mobility restrictions in the last three months of the year, prompted economic managers to hike growth forecasts for 2021 to 5-5.5%.
Chanco — who agrees with the central bank that faster inflation will mainly be caused by temporary supply-side concerns — also projected that growth will slow to 4.5% in 2022 from the estimated 5.5%.
He said this is due to election-related headwinds in investment and government expenditure in the first semester of next year. Chanco also said private consumption could be “fairly tepid” as rebuilding of savings lost amid the COVID-19 pandemic will affect spending decisions.
Overnight deposit and lending rates were likewise retained at 1.5% and 2.5%, respectively, he added.
BSP Deputy Governor Francisco Dakila, Jr. announced revised estimates of 4.4% and 3.4% for this year and 2022, slightly up from the previous 4.3% and 3.4% prospects.
However, it kept its 3.2% inflation forecast for 2023 unchanged.
Listed as upside risks to inflation are the lingering supply constraints on key food items and transport fare hike petitions, while the discovery of new coronavirus variants along with possible tightening of global financial conditions are cited as downside risks.
“On balance, the Monetary Board sees enough scope to keep a patient hand on the BSP’s policy levers owing to a manageable inflation environment,” Diokno said.
“Hence, preserving ongoing monetary policy support at this juncture shall help sustain the economy’s momentum over the next few quarters,” he added.
