The Bangko Sentral ng Pilipinas (BSP) policy-making Monetary Board (MB) yesterday kept the central bank’s key policy rates despite the upward adjustments in the average inflation forecasts for this and next year.
Thus, the central bank’s overnight reverse repurchase (RRP) rate is still at record low 2 percent, the overnight lending rate is at 2.5 percent, and the overnight deposit rate is at 1.5 percent.
In a virtual briefing on Thursday, BSP Governor Benjamin Diokno said the latest average inflation forecast for this year was hiked to 4.3 percent, higher than the government’s 2-4 percent target band, and the 2023 projection was changed to 3.6 percent.
These were at 3.7 percent and 3.3 percent for 2022 and 2023, respectively, during the MB meeting last February.
Diokno attributed the hikes in the inflation forecasts to upticks of commodity prices in the international market.
“Inflation expectations have likewise risen but continue to be anchored to the 2-4 percent target band,” he said.
Amidst these developments, Diokno said “the balance of risks to the outlook remain broadly balanced for 2023.”
He said domestic inflation pressures are driven by supply issues on pork and fish and the potential impact of higher oil prices on transportation fares.
“In this regard, the BSP supports the implementation of social protection measures to alleviate the impact of rising crude oil prices on vulnerable sectors. Sustained initiatives to ensure adequate domestic food supply could also mitigate further supply-side pressures on inflation,” he said.
Diokno further said downside risks to the rate of price increases come from the threat of COVID-19 cases and the emergence of new COVID-19 variants, which is expected to hamper global economic recovery and may result in implementation of new movement restrictions.
He said the MB also noted that domestic economy activities continue to gain ground following the easing of movement restrictions.
“However, heightened geopolitical tensions and a resurgence in COVID-19 infections in some countries have also clouded the outlook for global economic growth. Supply-chain disruptions could also contribute to inflationary pressures, and thus warrant closer monitoring to enable timely intervention in order to arrest potential second-round effects,” he added.
With these factors, Diokno said the MB “sees scope to maintain the BSP’s policy settings in order to safeguard the momentum of economic recovery amid increased uncertainty, even as it continues to develop its plans for the gradual normalization of its extraordinary liquidity measures.”
“Given the potential broadening of price pressures over the near term, the BSP stands ready to respond to the buildup in inflation pressures that can disanchor inflation expectations, in keeping with its price and financial stability objectives,” he added.
During the same briefing, BSP Deputy Governor Francisco Dakila Jr. said the upside revisions in the 2022 and 2023 inflation forecast was due to the same decisions for the assumption on oil prices in the international market because of the impact of the Ukraine-Russia conflict.
He said the projection for Dubai crude oil price for this year was changed from an average of USD83.33 per barrel to USD102.23 per barrel.
For 2023, the projection was adjusted from USD75.69 per barrel to USD88.21 per barrel.
“The main driver of the revision of the forecasts is the sharp increase of global oil prices and also due to higher global non-oil prices,” he said.*PNA