Philippines central bank holds key rate

Bloomberg

The Philippine central bank, which held interest rates steady, warned inflation may breach its target this year and that it stands ready to respond to a build up in price pressures.
Bangko Sentral ng Pilipinas left the benchmark rate at a record low 2%, as predicted by all 23 economists in a Bloomberg survey. Its last rate move was a 25-basis point cut in November 2020. The central bank also raised its 2022 inflation forecast to 4.3%, compared with its 2%-4% target.
The Philippines, which has so far refrained from the global rate-hiking cycle led by the Federal Reserve, is sending stronger signals that it sees a path towards normalisation as inflation pressures build.
“The Monetary Board sees scope to maintain the BSP’s policy settings in order to safeguard the momentum of economic recovery amid increased uncertainty,” said Governor Benjamin Diokno.
, “even as it continues to develop its plans for the gradual normalization of its extraordinary liquidity measures.”
Diokno added that the bank stands ready to move to arrest second-round inflation, but sustaining economic recovery remains a priority. He also reiterated that non-monetary measures are best to address price pressures, saying a cut in the banks’ reserve requirement remains on the table, and may happen in the second half of this year.
Economic Planning Secretary Karl Chua said last week that the economy is still on track to grow within the government’s 7%-9% forecast despite recent headwinds, including Russia’s invasion. The attack on Ukraine has stoked commodities prices and clouded global trade and investment prospects, with the Philippines seen as among the most vulnerable in Asia to surging oil prices.
“Given the exposure of the Philippines to the global commodity price surge, we are expecting inflation to quicken rapidly in the coming months,” said Nicholas Mapa, senior economist at ING Groep NV in Manila. “A delay to the second half of the year could translate to BSP falling behind curve as other global central banks, such as the Fed, could have possibly raised rates by as much as 100 basis points.”