BSP keeps policy rates at record lows, reiterates inflation uptick 'transitory'

The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) decided to keep policy rates unchanged on its first policy meeting for the year on Thursday, even as inflation has continued to accelerate in the last four months.

At a virtual briefing, BSP Governor Benjamin Diokno said the monetary board decided to maintain rates at record lows -- the overnight reverse repurchase (RRP) facility at 2.00%, the overnight deposit at 1.5%, and the overnight lending facility at 2.5%.

"The Monetary Board noted that inflation is likely to remain elevated in the coming months, reflecting the impact of supply constraints on domestic prices of key food commodities such as meat and vegetables as well as the recent uptick in international oil prices," he said.

"At the same time, the latest baseline projections show inflation returning to within the target range of 2-4 percent over the policy horizon as supply-side influences subside. The Monetary Board also noted that inflation expectations continue to be anchored within the inflation target band," he added.

At the same briefing, the BSP announced revised inflation figures for this year at 4.0% versus its previous forecast of 3.2% in its December meeting, given the continued increase in prices of food products, specifically of pork, given the African swine fever (ASF) outbreak.

Inflation clocked in at 2.9% in January to extend the upward trend for the fourth consecutive month and mark the highest since June 2019's 2.7%, but the BSP has maintained that the uptick is "temporary."

For next year, the BSP said inflation is expected to slow down to 2.7% versus its previous forecast of 2.9% as supply-side issues are addressed moving forward, bringing it to the middle of the target range of 2 to 4%.

"Inflation target should remain unchanged. That is the nature of a target, that it's something that you want to aim for and you should not change the benchmark in response to current developments," said BSP Deputy Governor Francisco Dakila Jr.

"As we have said, we are still within target for this year at 4% although it is really touching the ceiling of the target range, but timely interventions on the supply side will result in lower inflation," he elaborated.

Among the supply-side interventions seen to address the increase in prices of agricultural products include the augmentation of the local production of pork, measures to address the supply chain, diversification of food sources, and the supply augmentation through the importation, the lowering of tariffs, and increasing the minimum access volume for pork.

"On balance, the Monetary Board is of the view that the manageable inflation outlook continues to allow the BSP to maintain an accommodative policy stance and thus complement crucial fiscal policy measures in supporting economic activity and market confidence," said Diokno.

"The Monetary Board likewise reiterates its support for urgent and coordinated efforts with government agencies in implementing non-monetary interventions to enable all Filipinos access to internationally competitively priced food and thereby mitigate the impact of supply-side factors on inflation," he added. -MDM, GMA News