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Philippines Monetary Policy June 2021

Philippines: Central Bank keeps rates unchanged in June

At its monetary policy meeting on 23 June, the Central Bank of the Philippines maintained the overnight reverse repurchase facility rate at its record low of 2.00%, marking the fifth successive hold and broadly 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.

Signs of a nascent recovery, coupled with well-anchored inflation expectations, prompted the Bank to maintain its accommodative monetary stance. Economic activity appears to have gained steam in recent weeks, supported by targeted fiscal stimulus measures and ongoing vaccination efforts, but still-high Covid-19 cases and lingering restrictions have capped the pace of recovery. On the price front, gradually subsiding supply-side pressures, particularly for food commodities, should keep inflation in check ahead, with the headline reading expected to average close to the upper bound of the government’s 2.0%–4.0% target range in 2021. On top of this, broadly balanced risks should see inflation returning to near the midpoint of the target range next year, providing the Bank with room to continue its supportive monetary policy.

Similar to its previous meeting, the Bank’s communiqué did not include any explicit forward guidance. The BSP stated it remains committed to supporting the economy “for as long as necessary to ensure its strong and sustainable recovery”, also stressing that it stands ready to adjust its stance according to emerging risks. The majority of our panelists see the key rate remaining unchanged at 2.00% for the rest of the year.

Commenting on the Bank’s decision and the outlook ahead, Julia Goh and Loke Siew Ting, economists at United Overseas Bank, noted:

“This is in line with BSP Governor Benjamin Diokno’s comment on 1 June that the Central Bank will likely keep the monetary policy loose until the national economic recovery proves to be sustainable, which he expects only in H2 2022. As such, we maintain our view that the RRP rate will be kept at 2.00% for the rest of 2021.”

The next policy meeting is scheduled for 12 August.

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