Philippine central bank keeps rate at record low as economic outlook dims

FILE PHOTO: A logo of Bangko Sentral ng Pilipinas (Central Bank of the Philippines) is seen at their main building in Manila, Philippines March 23, 2016. REUTERS/Romeo Ranoco/File Photo/File Photo

MANILA (Reuters) -The Philippine central bank kept interest rates at record lows on Thursday, looking past increasing inflation pressures to support an economy struggling with the fallout of recent COVID-19 curbs.

The Bangko Sentral ng Pilipinas (BSP) kept the rate on the overnight reverse repurchase facility at 2.0% for the seventh straight policy meeting, as widely expected in a Reuters poll, even as it increased its inflation forecasts for this year, 2022 and 2023.

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

BSP Governor Benjamin Diokno told a news briefing policy settings remained appropriate, with inflation pressures still manageable and the growth outlook uncertain. Inflation is running above the central bank's 2%-4% target range.

"The outlook for recovery continues to hinge on timely measures to prevent deeper negative effects on the Philippine economy," he said.

The Philippine economy came out of a recession in the second quarter but the reimposition of strict lockdown measures from July to mid-September has clouded the outlook.

Indeed, the government cut its 2021 growth target in August to 4.0% to 5.0%, from 6.0% to 7.0% previously.

Some of those curbs have since been eased, with the Manila capital region shifting away from wide-scale lockdowns to localised ones from Sept. 16 as it tries to contain the virus while allowing some businesses to resume operations.

"The economy remains very weak, which suggests policy will need to remain loose for some time," said Alex Holmes, an economist at Capital Economics.

He expected no further rate cuts but also believed the BSP would not raise rates until 2023 despite elevated inflation, which accelerated to 4.9% in August, its highest in nearly three years.

The BSP raised its average inflation forecasts to 4.4% from 4.1% for this year, 3.3% from 3.1% for 2022, and 3.2% from 3.1% for 2023.