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Philippines Monetary Policy August 2021

Philippines: Central Bank keeps rates unchanged in August as outlook worsens

At its monetary policy meeting on 11 August, the Central Bank of the Philippines (BSP) maintained the overnight reverse repurchase facility rate at its record low of 2.00%, marking the sixth successive hold and matching market analysts’ expectations. Likewise, the overnight deposit facility and the overnight lending facility rates—which establish the floor and the ceiling of the interest rate corridor—were left at 1.50% and 2.50%, respectively.

The Central Bank has raised its 2021 inflation forecasts since its last meeting, due to rising commodity prices and the peso’s depreciation. However, inflation expectations remain anchored, and the Bank sees inflation falling to 3.0% in the medium run, within its 2.0%–4.0% target band, partly on the back of government measures to reduce supply-side pressures. Meanwhile, a low vaccination rate and rising Covid-19 cases in the country prompted the government to reintroduce new restrictions, making the economic outlook bleaker. The combination of tepid activity and manageable inflation projections pushed the Bank to retain its accommodative monetary stance.

Similar to its previous meeting, the Bank’s communiqué did not include any explicit forward guidance. However, the BSP sounded a marginally more dovish note than last month, stating it remains committed to supporting the economy for as long as is required for the recovery to “gain more traction”, as the prospects for a strong outturn in H2 2021 now appear fairly remote. The majority of our panelists see the policy rate remaining unchanged at 2.00% for the rest of the year.

The next policy meeting is scheduled for 23 September.

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