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‘Too early’ to raise rates now — Diokno

BANGKO SENTRAL ng Pilipinas (BSP) Governor Benjamin E. Diokno said it is “too early” to raise interest rates, as the central bank is keen on keeping an accommodative policy to support recovery.

“I think it’s too early [to] raise interest rates. We’re focused on assessing developments abroad and at home and right now, we don’t see the need to raise interest rates at this point,” Mr. Diokno said in an interview with Bloomberg TV. 

“We’re looking at 2021 as our recovery year and 2022 that’s when we will be back to where we were before the crisis. So we think the current policy setting is appropriate for this kind of outlook,” he added.

Last week, the Monetary Board (MB) kept the overnight reverse repurchase, lending, and deposit rates at record lows of 2%, 2.5%, and 1.5%. It was the second consecutive policy meeting where the MB opted for a pause after cutting rates by 200 basis points last year amid the crisis.

The BSP’s decision to maintain rates came following the two-year high January inflation print of 4.2%, which puts the country under a negative real interest rate environment.

The central bank has raised its inflation forecast for the year to 4% from 3.2%, citing the continued upside pressures from rising food and oil prices.

“We see inflation to be elevated maybe within the first half of this year but it will taper off in the second half. We are optimistic that it will be within our target range of 2-4%,” Mr. Diokno said, noting inflation is expected to slow down by 2022 “as things normalize.”

For Ateneo de Manila University Economist Alvin P. Ang, the central bank will only likely consider a rate hike “maybe when inflation breaches 6% and remains within that level.”

On the other hand, data that will show banks are lending again may push the central bank to go for another rate cut, he said in a Viber message.

Mr. Ang said the BSP will likely keep rates until May before deciding whether to change the policy rates.

The Monetary Board will have its next policy-setting meeting on March 25. It will be followed by another one on May 13.

Despite the aggressive easing in policy rates last year, lending has been tepid and even declined by 0.7% in December. This, as banks tightened their credit standards to guard against bad loan pileup while borrowers’ confidence remained weak. — Luz Wendy T. Noble

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