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Philippines Monetary Policy March 2021

Philippines: Central Bank stands pat in March

At its monetary policy meeting on 24 March, the Central Bank of the Philippines left the overnight reverse repurchase facility rate unchanged at 2.00%. The move marked the Bank’s third consecutive hold and was widely anticipated 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.

Higher inflation expectations for 2021, amid lingering supply-side price pressures, prompted the Bank to leave its policy stance unchanged. In February, inflation hit an over two-year high of 4.7% (January: 4.2%), amid a spike in prices for meat, owing to the current outbreak of African swine fever in the country. This, coupled with a continuous rise in international oil prices, has resulted in upwardly revised inflation forecasts over the policy horizon, with the Bank now expecting inflation to land above the upper bound of its 2.0–4.0% target range in 2021. Next year, however, inflation is seen returning to within the target band as supply-side price pressures subside.

In its communiqué, the Bank reiterated its commitment to supporting the economic recovery and stressed that “the timely implementation of non-monetary interventions is crucial in mitigating the impact of supply-side pressures on inflation”.

Nicholas Mapa, senior economist at ING, said:

“We expect the central bank to keep policy rates unchanged in the near term, with the Bank willing to look past the supply side-induced price spike for now to maintain support for the economic recovery. The central bank may consider a rate hike if inflation remains stubbornly high, which could dis-anchor inflation expectations and spark second-round effects such as wage and transport fare adjustment.”

Rini Sen and Sanjay Mathur, economists at ANZ, concur, adding:

“We do not expect any change in these policy settings for the remainder of 2021. Rather, […] we see a case for greater emphasis on strengthening policy transmission and enhancing credit growth. The latter has almost ground to a halt in recent months, consistent with tighter lending standards.”

The next policy meeting is scheduled for 13 May.

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