Philippine central bank keeps rate at record low amid Covid surge

CREDIT INTEREST RATE - MANILA. The Philippine central bank left its key interest rate at a record low on Thursday and said it would continue to provide monetary support for as long as necessary, as Covid-19 restrictions clouded the economic outlook.

The Bangko Sentral ng Pilipinas (BSP) kept the rate on the overnight reverse repurchase facility at 2.0% for a sixth straight policy meeting, as expected by all 11 economists polled by Reuters.

The rates on the overnight deposit and lending facilities were also held steady at 1.5% and 2.5%, respectively, while the central bank slightly raised its inflation forecasts for this year and next.

"The Monetary Board ... observed that the reimposition of quarantine measures to arrest the recent wave of Covid-19 infections could pose a risk to the ongoing economic recovery," Governor Benjamin Diokno told a news briefing.

The central bank was keen to sustain monetary policy support and stood ready to adjust policy settings as needed, he said, adding that the risks to inflation looked balanced.

While the economy grew at its fastest annual pace in over three decades in the April-June period from a COVID-induced slump a year ago, it contracted on a quarterly basis, while curbs reimposed in parts of the country from Aug. 6 were clouding the outlook.

Some economists say the central bank has limited scope for further monetary easing, given lofty inflation, and that the onus is on the government to provide further fiscal support.

Inflation came within the central bank's official target for the first time this year in July, but remained at the top end of the 2%-4% band.

The BSP raised its average inflation forecast for 2021 to 4.1% from 4.0% previously.

It projected average inflation of 3.1% for 2022 and 2023, up from the previous forecast of 3.0% for both years.

Diokno said fiscal support and an accelerated vaccination program will be crucial in safeguarding public health and preventing a deeper economic downturn.

The Philippines reported 12,439 more new Covid-19 infections on Thursday - the highest in four months - with cases staying above the 12,000 mark for a second consecutive day.

The Philippine peso was 0.2% higher ahead of the central bank policy meeting.