The Philippine central bank decided to keep its key interest rate at a record low on Wednesday, after official data showed that the economy continued to contract at the start of the year.
The Monetary Board of the Bangko Sentral Ng Pilipinas decided to hold the key interest rate, which is the overnight reverse repurchase facility rate, steady at 2.00 percent.
The interest rates on the overnight deposit and lending facilities were kept at 1.5 percent and 2.5 percent, respectively.
“On balance, the expected path of inflation and downside risks to domestic economic growth warrant keeping monetary policy settings steady,” the bank said in a statement.
Looking ahead, the central bank affirmed that maintaining an accommodative stance should quicken the economy’s transition toward a sustainable recovery.
Data released on Tuesday showed that the economy contracted for the fifth straight quarter in the three months to March period. Gross domestic product fell 4.2 percent in the first quarter from the last year, but slower than the 8.3 percent decline seen in the fourth quarter of 2020.
The bank expects inflation to settle within the target range in 2021 and 2022. The BSP downgraded its inflation outlook for 2021 to 3.9 percent from 4.2 percent. Meanwhile, the outlook for 2022 was raised to 3 percent from 2.8 percent.
The bank said sustained support for domestic demand remains a priority for monetary policy, especially as risk aversion continues to hamper credit activity despite ample liquidity in the financial system.
The main reason the central bank did not cut interest rates today is elevated inflation, Alex Holmes, an economist at Capital Economics, said. The economist expects inflation to fall back in the second half of the year.
The material has been provided by InstaForex Company – www.instaforex.com