Economy 3 MIN READ

UPDATE 2-Philippine stands pat as Omicron threats loom

December 16, 2021By Reuters

Key rate kept at 2.0%, as unanimously expected in Reuters poll

BSP says new COVID-19 variants pose downside risk to growth

BSP says Fed signal on tapering factored into inflation outlook

Adds comment on Fed signal, economist outlook

By Neil Jerome Morales and Karen Lema

The Philippine central bank kept its policy rate at a record low on Thursday, maintaining support for the economy while uncertainty looms around the new Omicron variant but adding that the inflation environment remains “manageable”.

The Bangko Sentral ng Pilipinas (BSP) kept the rate on the overnight reverse repurchase facility PHCBIR=ECI at 2.0%, as expected by all 22 economists in a Reuters poll, at its last policy meeting this year. nL4N2SU2J5

The BSP also kept rates on its overnight deposit and lending facilities at 1.5% and 2.5%, respectively.

“On balance, the Monetary Board sees enough scope to keep a patient hand on the BSP’s policy levers owing to a manageable inflation environment,” BSP Governor Benjamin Diokno said in a media briefing.

The central bank’s inflation outlook has taken into account market expectations for interest rates globally, said BSP Deputy Governor Francisco Dakila, after the Federal Reserve on Wednesday flagged a long-awaited end to its monetary stimulus next year. nL1N2SZ1G5

The Philippines’ annual inflation rate came in at 4.2% in November, holding above the central bank’s 2%-4% target but the lowest in four months. nP9N2QV010

The central bank expects average inflation to settle at 4.4% this year and fall back within the target range in 2022 and 2023.

The Philippine economy, one of the fastest-growing in Asia before the coronavirus hit, expanded 7.1% year-over-year in the July-September quarter, slower than the previous quarter’s 12% expansion.

But a further easing of COVID-related restrictions is expected to support growth in the final quarter of this year, prompting the government earlier this week to upgrade its 2021 growth target. nL1N2S003Q nL1N2SZ0LP

Yet Diokno said new COVID-19 variants pose downside risks to the economy.

“Hence, preserving ongoing monetary policy support at this juncture shall help sustain the economy’s momentum over the next few quarters,” he said.

Economists in a recent Reuters poll expected the BSP would raise rates in the fourth quarter of 2022, slighly earlier than the median forecast of early 2023 in a survey last month. nL4N2SU2J5

Gareth Leather, senior Asia economist at Capital Economics, said the BSP may keep rates on hold throughout 2022, highlighting the risk from Omicron.

“The Philippines is more vulnerable than most other countries in the region to the spread of Omicron because of its low vaccination rate,” he said.

(Reporting by Neil Jerome Morales, Karen Lema and Enrico Dela Cruz; Editing by Ana Nicolaci da Costa and Edmund Klamann)


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