September 22, 2021

Slowing inflation gives BSP space to keep rates low

by | Jul 22, 2021 8:20PM

Bangko Sentral ng Pilipinas Governor Benjamin Diokno said Thursday the manageable inflation rate is giving monetary authorities elbow room to maintain the current policy stance.

Inflation slowed down to 4.1 percent in June, after recording 4.5 percent for three consecutive months. The figure brought the average in the first semester to 4.4 percent, above the target range of 2 percent to 4 percent for the year.

“We believe that the prevailing monetary policy stance remains appropriate, especially as price pressures are expected to dissipate further with the continued implementation of non-monetary supply-side measures by the government,” Diokno said in an online briefing on the second-quarter inflation.

“Keeping an accommodative stance shall also help counteract risk aversion among banks, which continues to temper lending activity despite ample liquidity in the financial system,” he said.
The BSP kept its policy rate at a record-low of 2 percent in the second quarter, given a within-target outlook for inflation and the need for continued policy support to drive economic growth.

Inflation hovered above the government’s target range as prices of selected food and transportation items remained elevated because of temporary supply bottlenecks.

International commodity prices, particularly crude oil, also increased with the rebound in global economic activity. Average Inflation decreased to 4.3 percent in the second quarter from 4.5 percent in the first quarter, as non-monetary interventions eased domestic supply constraints.

“In the coming months, the continued facilitation of meat imports and other targeted programs to augment domestic supply should further temper pressures on food prices and inflation,” Diokno said.

He said given the trends, latest projections show that average inflation would likely settle near the upper end of the target range of 2 to 4 percent in 2021, before easing towards the midpoint of the target range in 2022 and 2023.

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