UPDATE 2-Philippine cbank stands pat, but sees 2022 inflation above target

Adds economist comment, possible RRR cut in H2

By Neil Jerome Morales and Enrico Dela Cruz

MANILA, March 24 (Reuters) – The Philippine central bank left key interest rates steady on Thursday to shore up a domestic economy facing risks from global uncertainties, but it raised inflation forecasts and highlighted its readiness to temper increasing price pressures.

The Bangko Sentral ng Pilipinas (BSP) kept the rate on the overnight reverse repurchase facility PHCBIR=ECI at 2.0% for an eleventh straight policy meeting, as predicted by all 17 economists in a March 15-21 Reuters poll. nL3N2VL3OA

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

“The Monetary Board sees scope to maintain the BSP’s policy settings in order to safeguard the momentum of economic recovery amid increased uncertainty, even as it continues to develop its plans for the gradual normalisation of its extraordinary liquidity measures,” BSP Governor Benjamin Diokno said.

The Philippine peso PHP= was little changed against the U.S. dollar by 0755 GMT. The country’s main share index .PSI was up 1%.

Average inflation could breach the upper end of the 2%-4% target range in 2022 by reaching 4.3%, higher than the February forecast of 3.7%, Diokno said.

For 2023, average inflation was seen at 3.6%, higher than the previous projection of 3.3%.

Inflation held steady at a 16-month low of 3% in February as higher energy costs were offset by lower prices of some food items. nL2N2V7049

But the impact of high commodity prices, following Russia’s invasion of Ukraine, has been significantly felt in the Philippines – a net oil importer – triggering petitions from labour groups for higher wages and from transport groups to increase fares.

Diokno said on March 17 the BSP did not have to move in step with the monetary policy adjustments of the U.S. Federal Reserve, which has begun raising rates to counter risks from high inflation. nL2N2VK0D2 nP8N2QO02M nL2N2VI1CD

“As inflation accelerates, BSP runs the risk of losing a grip on inflation expectations and possibly falling behind the curve,” said Nicholas Mapa, a senior economist at ING.

The BSP was expected to hike rates by 50 basis points in the last quarter of the year to 2.50%, according to the March 15-21 poll, matching predictions in a Reuters survey in February.

But a significant minority of economists – eight of 17 – pencilled in a hike in the third quarter.

Amid growing expectations of BSP tightening later this year Diokno flagged a possible cut in banks’ reserve requirement ratio in the second half.

(Reporting by Neil Jerome Morales and Enrico Dela Cruz; Editing by Jacqueline Wong and Bradley Perrett)

((enrico.delacruz@tr.com))