Philippine cbank stands pat, but flags inflation risks

The Philippine central bank kept its policy rate at a record low on Thursday, maintaining support for the pandemic-hit economy even as it warned of risks to inflation next year.

The Bangko Sentral ng Pilipinas (BSP) kept the rate on the overnight reverse repurchase facility at 2.0 per cent, saying it would prioritise policy support to ensure a sustained recovery but stood ready to respond to second round effects.

"On balance, the sum of new data suggests that there remains scope to hold monetary policy settings steady amid a manageable inflation environment," BSP Governor Benjamin Diokno said.

"Keeping a patient hand on the BSP's policy levers, along with appropriate fiscal and health interventions, will keep the economic recovery more sustainable over the next few quarters," he told reporters at a news conference on the resort island of Boracay.

The Philippines, which suffered one of Asia's worst outbreaks of the pandemic, slashed its growth target this year to 4 per cent-5 per cent from 6 per cent-7 per cent.

A decline in infections has allowed for a gradual easing of curbs, with more businesses reopening and helping the recovery gain some momentum in recent months.

Annual economic growth slowed less than expected in the third quarter, putting the country on course to meet, if not exceed, its 2021 target, according to Philippines officials, including Diokno.

"A surprise pick-up in economic growth opens the door for possible adjustments down the road," said Nicholas Mapa, a senior economist at ING, predicting a BSP rate hike as early as the second quarter of 2022.

Other economists, however, believe the BSP could keep its loose policy stance even longer.

"Barring any surprise remarks, we are sticking with our view that rates will remain on hold throughout 2022," said Alex Holmes, Asia economist at Capital Economics.