BSP hikes inflation outlook, keeps policy rates at record lows

The Bangko Sentral ng Pilipinas (BSP) on Thursday hiked its inflation forecasts, but maintained key policy rates at record lows.

At a virtual briefing, BSP Deputy Governor Francisco Dakila Jr. said inflation is now expected to average 4.0% this year, higher than the 3.9% outlook in May and at the upper end of the government's 2% to 4% target range.

The revision in the inflation forecast is driven by the higher global crude oil prices, and  a more favorable global growth outlook after recovery from the COVID-19 pandemic.

The central bank said it now expects inflation to settle at 3% in 2022, and announced the same for 2023.

"Price pressures on food commodities have abated with favorable weather conditions and the facilitation of meat imports to augment domestic supply," BSP Governor Benjamin Diokno said in the same briefing.

Latest inflation forecasts:

2021: 4.0% (versus earlier outlook of 3.9%)
2022-2022: 3.0%

Revisions factored in the higher global crude oil prices and more favorable global growth outlook. pic.twitter.com/KGLnA7PqTX

— Jon Viktor Cabuenas (@ViktorCabuenas) June 24, 2021

"The Monetary Board emphasizes that the continued implementation of direct non-monetary measures will be crucial in mitigating further supply-side pressures on meat prices and inflation," he added.

President Rodrigo Duterte last month issued Executive Order 133 that raised the minimum access volume (MAV) for pork imports to 254,210 metric tons (MT) from 54,210 MT.

Duterte in April also signed EO 128, which reduced the tariff rates on imported pork to 5% to 20% from the previous rates of 30% to 40%.

With the latest inflation outlook, the Monetary Board on Thursday decided to keep policy 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 @BangkoSentral Monetary Board on Thursday decided to keep policy rates unchanged at record lows -- overnight reverse repurchase facility at 2.00%, overnight deposit at 1.5%, and overnight lending facility at 2.5%.

Inflation likely to settle at the upper end of 2-4% target. pic.twitter.com/xvz4ygl3na

— Jon Viktor Cabuenas (@ViktorCabuenas) June 24, 2021

"On balance, the expected path of inflation and downside risks to domestic economic growth warrant keeping monetary policy settings unchanged," Diokno said.

"The Monetary Board believes that sustained monetary policy support for domestic demand should help the economic recovery gain more traction, especially as risk aversion continues to temper credit activity despite ample liquidity in the financial system," he added. — RSJ, GMA News