BSP to keep rates low as long as inflation stays stable
The Central Bank will keep its policy stance supportive of the economy as long as inflation remains stable, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said.
“The BSP will remain vigilant of the current inflation dynamics to ensure that the monetary policy stance will support economic recovery to the extent that the inflation outlook will allow,” Mr. Diokno said at a Thursday hearing to deliberate the 2022 budget of the Development Budget Coordination Committee at the House of Representatives.
“It will carefully scan the operating environment with a forward-looking perspective to move in a preemptive fashion to address any risks to our price stability mandate,” he added.
This, as he noted potential risks to prices due to a recovery in global demand for commodities.
“Potential further uptick on international commodity prices due to improving global demand amid lingering supply chain bottlenecks will pose upside risks to inflation,” Mr. Diokno said.
The Monetary Board kept benchmark interest rates at record lows at its Aug. 12 meeting, citing the need for an accommodative policy stance due to the risks posed by the reimposition of strict lockdown measures to the ongoing economic recovery.
At that meeting, the BSP hiked its inflation forecast for the year to 4.1% from 4% previously, above the 2-4% target. It also raised its estimates for 2022 and 2023 to 3.1% from 3% previously.
Inflation stood at 4% in July, marking the first time it fell within the government’s target range since December 2020.
However, year to date, inflation averaged at 4.4%, still above the goal.
The Monetary Board will have its next policy review on Sept. 23.
“The BSP reaffirms its commitment to sustaining monetary policy support until the recovery fully gets underway,” Mr. Diokno said.
“We will remain watchful of domestic and global developments and stand ready to adjust its policy setting as needed to ensure price and financial stability conducive to a sustainable economic recovery,” he added.
The central bank chief said advanced and emerging economies will see diverging recovery paths, which will likely be determined by vaccination efforts and the effectiveness of policy support.
Still, despite the downside risks caused by new coronavirus variants, Mr. Diokno said the increase in the country’s vaccination pace in the past weeks could boost the country’s recovery prospects.
“There is optimism over the macroeconomic prospects given the acceleration of vaccine inoculation in the country, continued policy support and improved global economic outlook. We must keep this momentum ongoing and keep our guard against emerging risks,” he said.
“Economic recovery is highly contingent on the pace of vaccination program and the expanding capacity of the country’s healthcare system to allow us to safely reopen the economy and resume economic activity,” Mr. Diokno added.
The Philippines has fully vaccinated 12.21% or 1.197 million of its population, based on data from the Johns Hopkins University. The government targets to inoculate 70 million Filipinos with their first dose by November.