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September 26, 2022

BSP looks to sustain the country’s output growth potential by keeping the policy rates unchanged

The Bangko Sentral ng Pilipinas (BSP) on Thursday kept the rate at which borrows from or lends to banks unchanged at 2 percent, effectively sustaining a freeze in rates to help feed an economic recovery that is only beginning to gain speed.

“At its meeting on monetary policy today, the Monetary Board decided to maintain the interest rate on the BSP’s overnight reverse repurchase facility at 2.0 percent. The interest rates on the overnight deposit and lending facilities were likewise kept at 1.5 percent and 2.5 percent, respectively,” BSP Governor Benjamin Diokno said.

He noted that latest simulations indicate a slight increase in inflation projections compared to previous exercises as consequence of higher domestic food inflation and world oil prices but remained confident that inflation this year and next should average within the 2 to 4 percent target range.

“The risks to the inflation outlook continue to lean slightly towards the upside for 2022 but remain broadly balanced for 2023. Upside risks are linked mainly to the continued shortage in domestic pork and fish supply and the possible impact of higher oil prices on transport fares.

“The implementation of non-monetary measures to ensure adequate supply of key food commodities must be sustained in order to mitigate supply-side pressures on inflation. At the same time, increased volatility in international oil prices warrants close monitoring and appropriate interventions when necessary in order to arrest potential second-round effects. Meanwhile, downside risks still emanate from the lingering threat of COVID-19 infections owing to possible case resurgence from new variants, as delays in the easing of containment protocols could temper domestic growth prospects,” Diokno said.

According to him, economic recovery across the Philippines is “sustained on the back of the government’s ongoing vaccination program and the easing of mobility restrictions. However, elevated global commodity prices, heightened geopolitical tensions, and the uneven pace of vaccinations across countries could dampen the outlook for global economic recovery.”

This was why the policy-making Monetary Board considered it prudent to sustain its accommodative stance given the manageable price environment and the confluence of domestic and global events going forward, he said.

“Looking ahead, given the stronger signs of recovery in output growth and labor market conditions and improvements in domestic financial markets, the BSP will continue to carefully develop its plans for the eventual normalization of its extraordinary liquidity measures when conditions warrant, in keeping with our price and financial stability mandates,” Diokno said.

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