BSP keeps interest rates steady amid inflation outlook

The Bangko Sentral ng Pilipinas (BSP) has kept its key interest rate at 2 percent, with the Monetary Board maintaining the overnight borrowing rate at this level, along with the overnight deposit and lending facilities at 1.5 percent and 2.5 percent, respectively.

This decision was made as inflation is now projected to average near the upper end of the target band for 2021, with forecasts revised down from 4.2 percent to 3.9 percent, and for 2022 revised up to 3 percent.

Governor Benjamin Diokno stated that the expected inflation path and downside risks to domestic economic growth warrant keeping monetary policy settings steady to support domestic demand and quicken the economy's transition toward a sustainable recovery.

The BSP anticipates improvements in domestic growth, expecting it to turn positive in the next quarter, aided by targeted fiscal interventions, the vaccination program, and improved overseas prospects.

Factors contributing to the revised inflation outlook include the reduction in tariff for imported pork, the deceleration of inflation in March and April, the impact of first-quarter domestic output, and the appreciation of the peso against the US dollar, though countered by rising global oil prices.

However, the surge in Covid-19 infections and containment measures continue to temper market confidence and pose substantial downside risks to domestic demand.