Philippine central bank holds rates at record low to support pandemic-hit economy

MACROECONOMICS - MANILA. The Philippine central bank left its key interest rate steady at a record low on Wednesday, as policymakers focus on supporting an economy which is showing signs of recovering after shrinking last year and in the first quarter of 2021.

The Bangko Sentral ng Pilipinas (BSP) kept the rate on the overnight reverse repurchase facility at 2.0% for a fourth consecutive meeting, as predicted by all 13 economists in a Reuters poll.

The rates on the overnight deposit and lending facilities were also held steady at 1.5% and 2.5%, respectively.

The BSP's decision comes on the heels of Tuesday's data showing the economy contracted more than expected in the first quarter, although sequential growth momentum pointed to an emerging recovery.

"On balance, the expected path of inflation and downside risks to domestic economic growth warrant keeping monetary policy settings steady," BSP Governor Benjamin Diokno said at a briefing.

Diokno said the risks to the inflation outlook were broadly balanced, with both averages for this year and next seen settling within the 2%-4% target band.

The BSP lowered its inflation forecast for this year to 3.9%from 4.2% previously. For 2022, inflation is seen averaging 3.0%, up from the previous forecast of 2.8%.

Despite elevated inflation mainly driven by tight pork supply, some economists expect the BSP to stand pat for the rest of 2021.

Diokno signalled no change in policy settings anytime soon, saying that "sustained support for domestic demand remains a priority for monetary policy."

The Philippines, which suffered its biggest annual economic contraction on record last year, is battling one of Asia's worst coronavirus outbreaks with more than a million cases recorded and more than 18,000 deaths.

A new surge in COVID-19 cases starting in March had prompted the reimposition of stricter mobility curbs, and the BSP warned that infections "pose substantial downside risk to demand".

A slow rollout of COVID-19 vaccinations has also raised risks of a more prolonged period of economic weakness, which some analysts say may prompt further rate cuts to underpin demand.

Private consumption in the Southeast Asian nation, which accounts for nearly two thirds of GDP, has been hit hard and the worry is that will be some time before a strong revival takes root.