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Philippine Central Bank Maintains Key Rate

The Philippine central bank decided to maintain its key interest rate at a record low, as widely expected, on Thursday.

The Monetary Board of the Bangko Sentral Ng Pilipinas left 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 also kept at 1.5 percent and 2.5 percent, respectively.

Citing higher global commodity prices, the bank had raised its inflation forecast for 2022 to 4.3 percent from 3.7 percent. Nevertheless, average inflation is projected to decline and settle within the target band at 3.6 percent in 2023, the bank said. The bank observed that domestic economic activity gained stronger traction with the easing of remaining mobility restrictions. However, heightened geopolitical tensions and the resurgence in COVID-19 infections in some countries clouded the outlook for global economic growth.

Supply-chain disruptions could also contribute to inflationary pressures, and thus warrant closer monitoring to enable timely intervention in order to arrest potential second-round effects, the bank noted.

The BSP will be in little hurry to tighten policy in the months ahead, as supporting the economic recovery takes precedence over combating inflation, Alex Holmes, an economist at Capital Economics, said.

Inflation is expected to peak at 5 percent in the second quarter, Alex added. But this should prove temporary and it is likely to drop back to within the central bank’s 2-4 percent target range by the end of the year.

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