Philippine central bank holds rate, but sends hawkish signal

[MANILA] The Philippine central bank left key interest rates steady on Thursday (Mar 24) to shore up a domestic economy facing risks from global uncertainties, but it raised inflation forecasts and highlighted its readiness to temper increasing price pressures.

The Bangko Sentral ng Pilipinas (BSP) kept the rate on the overnight reverse repurchase facility at 2.0 per cent for an eleventh straight policy meeting, as predicted by all 17 economists in a Mar 15-21 Reuters poll.

The interest rates on the overnight deposit and lending facilities were likewise kept at 1.5 per cent and 2.5 per cent, respectively.

"The Monetary Board sees scope to maintain the BSP's policy settings in order to safeguard the momentum of economic recovery amid increased uncertainty, even as it continues to develop its plans for the gradual normalisation of its extraordinary liquidity measures," BSP governor Benjamin Diokno said.

The Philippine peso was little changed by 0715 GMT, following the BSP's decision. The country's main share index was up 1 per cent.

Average inflation could breach the upper end of the 2 per cent-4 per cent target range in 2022 by reaching 4.3 per cent, higher than the February forecast of 3.7 per cent, Diokno said.

For 2023, average inflation was seen at 3.6 per cent, higher than the previous projection of 3.3 per cent.

Inflation held steady at a 16-month low of 3 per cent in February as higher energy costs were offset by lower prices of some food items.

But the impact of high commodity prices, following Russia's invasion of Ukraine, has been significantly felt in the Philippines - a net oil importer - triggering petitions from labour groups for higher wages and from transport groups to increase fares. The government has been prompted to provide financial assistance to the hardest-hit sectors.

Diokno said on Mar 17 the BSP did not have to move in step with the monetary policy adjustments of the US Federal Reserve, which has begun raising rates to counter risks from high inflation.

The BSP was expected to hike rates by 50 basis points in the last quarter of the year to 2.50 per cent, according to the Mar 15-21 poll, matching predictions in a Reuters survey in February.

But a significant minority of economists - 8 of 17 - pencilled in a hike in the third quarter. REUTERS