Philippines: Central Bank holds fire in May
At its monetary policy meeting on 11 May, the Central Bank of the Philippines left the overnight reverse repurchase facility rate unchanged at 2.00%. The decision marked the Bank’s fourth consecutive hold and was widely expected by market analysts. Accordingly, 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.
Lower inflation expectations for 2021, amid subsiding supply-side price pressures, were behind the Bank’s decision to maintain its accommodative stance. Inflation remained stable at 4.5% in April, having eased from February’s over two-year high in March, amid gradually moderating prices for food commodities. As such, the Bank now expects inflation to average close to the upper bound of its 2.0–4.0% target range in 2021, before it returns to near the midpoint of the band next year. Meanwhile, following a softer but still-pronounced GDP contraction in Q1, the Bank expects the recovery to continue in the second quarter, boosted by a supportive fiscal policy stance and the progressing vaccine rollout.
In its communiqué, the Bank reiterated its commitment to “deploying its full range of instruments as appropriate in support of its price and financial stability mandates”.
Euben Paracuelles and Rangga Cipta, economists at Nomura, said:
“We maintain our forecast that the policy rate will be left unchanged at 2% throughout the rest of the year. While BSP has turned the dial towards supporting growth from watching inflation risks in the previous two meetings, the policy statement was clear in suggesting that the current stance is accommodative and that maintaining these policy settings is seen as helping the economy transition to a more sustainable recovery. Importantly, we continue to think that any prospects of monetary policy easing will be hamstrung by headline inflation staying above target, which we expect to be the case in the coming months. Indeed, despite BSP lowering its 2021 inflation forecast, the trajectory remains the same—Deputy Governor Dakila said that headline inflation will remain above target through Q3 before returning to within target by Q4.”
The next policy meeting is scheduled for 23 June.