The Philippines’ central bank left its key interest rate unchanged Thursday, citing the prospect of inflation overshooting its target in the medium term.

The Monetary Board of the Bangko Sentral Ng Pilipinas decided to hold the key interest rate, which is the overnight reverse repurchase facility rate, steady at 2.00 percent. This was in line with economists’ expectations.

“The Monetary Board is of the view that prevailing monetary policy settings remain appropriate to support the Government’s broader efforts to facilitate the recovery of the economy,” the central bank said in a statement.

Policymakers stressed the importance of the timely implementation of non-monetary interventions in mitigating the impact of supply-side pressures on inflation and thereby preventing them from spilling over as second-round effects.

Previously, the key rate was reduced by a quarter-point in November. The bank lowered the rate by a cumulative 200 basis points in 2020.

The interest rates on the overnight deposit and lending facilities were maintained at 1.5 percent and 2.5 percent, respectively.

The central bank expects inflation to breach the upper end of the target range of 2-4 percent this year, driven by the impact of supply-side constraints on domestic prices of key food commodities as well as the continuing uptick in international oil prices.

Inflation was projected to return within the target band in 2022 as supply-side influences subside.

Supply-side constraints for meat products and improved global economic activity could add further upside pressures on inflation, while the ongoing coronavirus pandemic pose downside risks.

The recent surge in virus infections and challenges over mass vaccination programs continue to temper prospects for domestic demand, the bank said.
Policymakers will remain watchful for any signs of inflation becoming broader based and is ready to take immediate measures when needed, the bank said.

“While a temporary rise in inflation means interest rates are set to remain on hold for the next few months, the dire economic outlook means the bank is still likely to cut rates later this year, Capital Economics economist Alex Holmes said.

The material has been provided by InstaForex Company –

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