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Philippines Monetary Policy November 2021

Philippines: Central Bank keeps rates unchanged in November

At its monetary policy meeting on 17 November, the Central Bank of the Philippines maintained the overnight reverse repurchase facility rate at its record low of 2.00%, marking the eighth 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 Bank’s inflation forecasts were broadly stable compared to its previous meeting, with inflation projected to fall to 3.0% in the medium run, and thus within the 2.0%–4.0% target band. Moreover, market inflation expectations remain anchored. Meanwhile, the Bank noted that the potential prolongation of restrictions and new Covid-19 variants pose downside risks to the outlook. The combination of an uncertain economic outlook and manageable inflation projections pushed the Bank to retain its accommodative monetary stance.

The Bank’s communiqué did not give explicit forward guidance, stating that it will seek to keep supporting economic growth while at the same time remaining vigilant about risks to future inflation. That said, the Bank noted that inflation risks for 2022 were mainly skewed to the upside, a shift in tone from its remark made in the previous meeting that risks were mainly balanced. If these upside risks materialize, this could put pressure on the Bank to hike. Currently, all panelists see the policy rate remaining unchanged at 2.00% for the rest of the year. For 2022, most panelists now see rates rising, although several still see rates on hold.

On the outlook, ING’s Nicholas Mapa commented:

“Recent inflation trends suggest that the elevated price pressures have faded somewhat as supply-side measures to address food shortages take hold. […] Slightly slower inflation gives the Central Bank some breathing room to retain accommodation for now, however, a surprise pickup in economic growth opens the door for possible adjustments down the road. We expect BSP to retain its accommodative stance to close out the year but we’ve penciled in a possible rate hike by the Central Bank by Q2 2022. By then the Philippine economy would have logged 4 straight quarters of GDP growth, which may be enough to convince Governor Diokno to finally reverse his current accommodative stance.”

The next policy meeting is scheduled for 16 December.

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