Bangko Sentral keeps key rate steady to support recovery


Posted at May 12 2021 04:06 PM | Updated as of May 12 2021 09:01 PM

MANILA - The Bangko Sentral ng Pilipinas kept its policy rate unchanged to support the country's recovery. 

The BSP kept its overnight reverse repurchase rate at a record low of 2 percent as the Philippines continued to struggle with the surge in COVID-19 cases that threatens economic recovery. 

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

The central bank's move was in line with the median forecast in a Reuters poll of economists that predicted the BSP will leave interest rates unchanged for a fourth straight meeting.

Some economists expect the BSP to keep rates unchanged for the rest of 2021, despite inflation breaching the 2 to 4 percent target band.

Inflation is expected to settle within the target range in 2021 and 2022, BSP Governor Benjamin Diokno said. 

The domestic economy is also likely to continue to recover in the coming months supported by the government’s targeted fiscal interventions, the sustained rollout of the vaccination program as well as improved prospects overseas.

However, the recently imposed restrictions temper confidence and pose “substantial downward risks" to demand, he said.

“The expected path of inflation and downside risk to domestic economic growth warrant keeping monetary policy settings steady,” Diokno said.

The BSP has vowed to continue supporting the economy, which shrank 4.2 percent in the first quarter of the year, and by a record 9.6 percent last year due to lockdowns. 

It reduced interest rates by a cumulative 200 basis points in 2020, and cut the reserve requirement ratio for banks by 200 basis points to 12 percent, in an effort to boost lending and economic activity. 

Despite this, bank lending has gone down, with financial institutions wary of loan defaults amid the economic disruptions caused by the COVID-19 pandemic. 

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