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Philippines Monetary Policy March 2022

Philippines: Central Bank keeps rates unchanged in March

At its monetary policy meeting on 23 March, the Central Bank of the Philippines (BSP) maintained the overnight reverse repurchase facility rate at its record low of 2.00%, marking the eleventh 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.

Inflation expectations and the Bank’s inflation forecasts for 2022 and 2023 increased compared to its previous meeting, largely due to higher oil prices provoked by Russia’s invasion of Ukraine. The Bank now forecasts inflation to breach the upper band of its target range of 2.0–4.0% in 2022, before falling back into the target band in 2023. Meanwhile, inflation expectations also increased but remained within the target band. Anchored inflation expectations and the uncertain economic outlook pushed the Bank to retain its accommodative monetary stance.

The Bank’s communiqué did not give explicit forward guidance. This said, the Bank said it now sees “scope” to maintain its current monetary policy, rather than deeming it “prudent” to do so as it had in its February meeting. It also made a reference to the potential broadening of price pressures and the possible de-anchoring of inflation expectations. Recent inflation figures have shown that price pressures have become increasingly widespread across various sectors of the economy, suggesting potential second-round effects which could lead to the de-anchoring of inflation expectations, threatening price stability. As a result, the emergence of these second-round effects—should they arise—could force the Bank to increase interest rates.

ING’s Nicholas Mapa sees the announcement as maintaining a dovish tone:

“Governor Diokno has reiterated his preference to maintain an accommodative stance to support the economy. Furthermore, he has given forward guidance suggesting that a rate hike would likely be delayed to the second half of the year.”

Analysts at ANZ note the Bank’s comments on non-monetary interventions and the importance of second-round effects:

“The Central Bank still believes that recent inflationary pressures are supply-side issues that can be best resolved with non-monetary interventions. […] We continue to expect the hiking cycle to commence in Q4 2022 but will closely monitor the breadth of inflation to ascertain second-round effects of higher oil prices.”

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