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Philippines Monetary Policy February 2021

Philippines: Central Bank stands pat in February

At its first meeting of the year on 10 February, the Central Bank of the Philippines (BSP) left the overnight reverse repurchase facility rate stable at 2.00%, in line with market analysts’ expectations. 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.

The Bank’s decision was underpinned by its expectations of inflation remaining elevated, but within target, in the coming months. In January, inflation hit a two-year high of 4.2% (December 2020: 3.5%), thus landing above the Bank’s target range of 2.0–4.0%. Looking ahead, however, inflation is seen easing and returning to target as supply-side price pressures on key food commodities subside, allowing the BSP to maintain its accommodative stance. Moreover, the Bank stressed that despite firming activity, the uncertain course of the pandemic, in light of new Covid-19 variants, and the possibility of delays in the deployment of vaccinations cloud the outlook.

In its communiqué, the Bank stressed that it “remains firm in its intent to take appropriate measures to ensure that the monetary policy stance continues to support the recovery of the economy”.

Commenting on the Bank’s decision and the outlook for monetary policy, Makoto Tsuchiya economist at Oxford Economics said:

“The BSP maintained the policy rate at 2% at its February meeting. We expect the central bank to look past the recent transitory surge in inflation and maintain the current policy rate into 2022 to support the recovery. Our inflation forecast of 3.9% in 2021 means the real interest rate is expected to remain negative and monetary policy will still be very accommodative.”

The next policy meeting is scheduled for 25 March.

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