UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting assess the latest BSP meeting.

Key Takeaways

“Bangko Sentral ng Pilipinas (BSP) refrained from any surprises at its monetary policy meeting (12 Aug), keeping all policy rates unchanged for the sixth straight meeting. The overnight reverse repurchase (RRP) rate was held at 2.00%, overnight deposit rate at 1.50%, and lending rate at 2.50%. The decision was made after the Monetary Board (MB) viewed that the current monetary policy stance remains accommodative and supportive of economic activities even though the re-imposition of stricter mobility curbs in the country could further dampen the outlook for domestic demand.”

“The overall tone… remained neutral, despite a slight upward revision in the central bank’s baseline inflation forecasts by 0.1% pts across 2021-2023. BSP is now projecting a 4.1% inflation rate for 2021 (from 4.0% previously; UOB forecast: 4.3%) and 3.1% for both 2022 and 2023 (from 3.0% previously; UOB forecast for 2022: 3.0%). Higher global oil and non-oil prices due to improving global demand and lingering supply chain bottlenecks amid a weaker Peso (PHP) are said to be the main factors pushing up its baseline inflation projections. However, the risks to the inflation outlook remain broadly balanced over the policy horizon.”

“In sum, the nation’s inflationary pressures remain elevated and more global central banks are set for a hawkish tilt amid looming downside risks to the domestic growth outlook. An acceleration in the national COVID-19 vaccination program is the key to sustain the Philippines’ economic recovery in the near term, in addition to ongoing implementation of targeted fiscal stimulus measures and steady monetary policy support. BSP is also staying vigilant to ensure that any potential policy responses will neither lead to excessive inflation nor triggered financial stability risks. Therefore, we believe that BSP will continue to press the pause button on rates for the rest of the year. The next monetary policy meeting is slated on 23 Sep.”

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