NextGen Day

MANILA, Philippines – The Monetary Board (MB) of the Bangko Sentral ng Pilipinas (BSP) maintained the central bank’s key policy rates on Thursday, despite upward revisions to average inflation forecasts for this year and next.

Thus, the central bank’s overnight reverse repurchase (RRP) rate remains at a record low of 2%, while its overnight lending rate remains at 2.5 percent and its overnight deposit rate remains at 1.5 percent.

BSP Governor Benjamin Diokno said in a virtual briefing on Thursday that the latest average inflation forecast for this year has been increased to 4.3 percent, above the government’s 2-4 percent target band, and the 2023 projection has been lowered to 3.6 percent.

These were set at 3.7 percent for 2022 and 3.3 percent for 2023 during the February meeting of the MB.

Diokno attributed the increases in inflation forecasts to global commodity price increases.

“Expectations of inflation have also increased, but remain anchored within the 2-4 percent target band,” he said.

Despite these developments, Diokno stated that “the risks to the outlook for 2023 remain broadly balanced.”

Domestic inflation pressures, he explained, are being fueled by supply constraints for pork and fish, as well as the potential impact of higher oil prices on transportation fares.

“In this regard, the BSP supports the implementation of social protection measures to cushion vulnerable sectors from the impact of rising crude oil prices. Sustaining efforts to ensure an adequate domestic food supply may also help alleviate additional supply-side pressures on inflation,” he said.

Additionally, Diokno stated that downside risks to the rate of price increases stem from the threat of coronavirus disease 2019 (Covid-19) cases and the emergence of new Covid-19 variants, which are expected to impede global economic recovery and may result in the implementation of new movement restrictions.

He added that the MB also noted that domestic economy activities have continued to grow in strength as a result of the relaxation of movement restrictions.

“However, rising geopolitical tensions and a resurgence of Covid-19 infections in a number of countries have clouded the outlook for global economic growth.” Supply-chain disruptions may also contribute to inflationary pressures and thus require closer monitoring in order to allow for timely intervention to avert potential second-round effects,” he added.

With these factors in mind, Diokno stated that the MB “sees room to maintain the BSP’s policy settings in order to sustain the economic recovery’s momentum in the face of increased uncertainty, even as it continues to develop its plans for gradual normalization of its extraordinary liquidity measures.”

“Given the potential for a broadening of price pressures in the near term, the BSP is prepared to respond to an increase in inflation pressures that threatens to destabilize inflation expectations, consistent with its price and financial stability objectives,” he added.

BSP Deputy Governor Francisco Dakila Jr. stated during the same briefing that the upward revisions to the inflation forecasts for 2022 and 2023 were due to the same assumptions about oil prices in the international market due to the impact of the Ukraine-Russia conflict.

He stated that the projected price of Dubai crude oil for this year has been increased from USD83.33 per barrel to USD102.23 per barrel.

The projection for 2023 has been increased from USD75.69 to USD88.21 per barrel.

“The primary reason for the downward revision of forecasts is the sharp increase in global oil prices, as well as the increase in global non-oil prices,” he explained.

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