At its meeting on monetary policy Thursday, the Monetary Board decided to maintain the interest rate on the BSP’s overnight reverse repurchase facility at 2 percent. The interest rates on the overnight deposit and lending facilities were likewise kept at 1.5 percent and 2.5 percent, respectively.

Latest baseline forecasts have increased from the previous monetary policy meeting, reflecting the impact of higher global commodity prices.

Average inflation could breach the upper end of the 2-4 percent target range in 2022 at 4.3 percent, higher than the February forecast of 3.7 percent.

Nevertheless, average inflation is projected to decline and settle within the target band at 3.6 percent in 2023. Inflation expectations have likewise risen but continue to be anchored to the 2-4 percent target band.

While upside risks to inflation have increased for 2022, the balance of risks to the outlook remain broadly balanced for 2023.

Upside risks over the near term continue to emanate from the shortage in domestic pork and fish supply as well as from the potential impact of higher oil prices on transport fares.

In this regard, the BSP supports the implementation of social protection measures to alleviate the impact of rising crude oil prices on vulnerable sectors.

Sustained initiatives to ensure adequate domestic food supply could also mitigate further supply-side pressures on inflation.

Meanwhile, downside risks are linked mainly to the lingering threat of COVID-19 infections, as the emergence of new variants could temper the global economic recovery and prompt the reimposition of domestic containment measures.

The Monetary Board further observed that domestic economic activity has gained stronger traction with the easing of remaining mobility restrictions.

However, heightened geopolitical tensions and a resurgence in COVID-19 infections in some countries have also clouded the outlook for global economic growth. Supply-chain disruptions could also contribute to inflationary pressures, and thus warrant closer monitoring to enable timely intervention in order to arrest potential second-round effects.

On balance, 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 normalization of its extraordinary liquidity measures.

Given the potential broadening of price pressures over the near term, the BSP stands ready to respond to the buildup in inflation pressures that can disanchor inflation expectations, in keeping with its price and financial stability objectives. BSP