BSP set to “keep rates unchanged” on inflation slowdown

07 Dec 2021

Inflation in the Philippines edged down to a four-month low in November, bolstering forecasts the central bank will maintain its benchmark interest rates steady at its final meeting of the year.

Having kept the rate on the overnight reverse repurchase facility at 2.0% since November 2020, the Bangko Sentral ng Pilipinas (BSP) is set to review its policy setting on 16 December.

The Consumer Price Index increased 4.2% in November compared to the previous year, yet down from October’s 4.6% rise on a slowdown in price hikes for the food and non-alcoholic beverages index, reports Business Times.

The headline figure surpassed the BSP’s forecast 3.3%-4.1% range for the month, and was higher than the average 3.9% forecast in a survey undertaken by Reuters news agency.

Furthermore, core inflation – not including volatile fuel and food prices – slowed down to 3.3% last month from 3.4% in October, as per the government data published on Tuesday.

Between January and November, inflation in the Philippines averaged at 4.5%, missing out on the central bank’s target range for this year of between 2-4%.

"Despite the upside surprise, the BSP is expected to keep rates unchanged for the rest of 2021," according to Nicholas Mapa, a senior ING economist.

Governor of the central bank, Benjamin Diokno said in a statement that although risks to the inflation outlook are leaning to the upside next year, they were largely balanced for 2023.

"The BSP stands ready to maintain its accommodative monetary policy stance to support the economy's recovery while also guarding against any emerging risks to its price and stability objectives," he stated.

The central bank has pledged to take a cautious stance in terms of policy to maintain the economic revival, which may be hindered by the Omicron Covid variant.

"With demand soaring this quarter and expected to continue in 2022, second round effects are likely to pick up rather fast," said Emilio Neri, lead economist at Bank of the Philippine Islands.