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UPDATE 2-Philippine cbank holds rates at record low as recovery concerns grow

* BSP keeps benchmark RRP rate at record low 2%

* Says inflation manageable, looks broadly balanced (Adds economist comments)

MANILA, March 25 (Reuters) - The Philippine central bank kept key interest rates steady on Thursday, balancing the need to support an economy facing renewed challenges from fresh coronavirus curbs with concerns about quickening inflation.

The Bangko Sentral ng Pilipinas (BSP) kept the rate on the overnight reverse repurchase facility at a record low of 2.0% for the third consecutive meeting, as predicted by all 13 economists in a Reuters poll.

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

With COVID-19 cases rising, the government reimposed stricter rules on movement in the capital Manila and nearby provinces this month, threatening hopes for an economic rebound after last year’s record contraction.

But there are concerns further monetary easing to boost support for the economy could fuel inflation, which last month hit a 26-month high of 4.7%, above the central bank’s 2%-4% target mainly due to food supply-related pressures.

BSP Governor Benjamin Diokno said the risk to the inflation outlook “appears to be broadly balanced” in 2021, although the central bank raised its inflation forecast for this year to 4.2% from 4.0% previously.

For 2022, the central bank projects inflation to return to the target band with the average seen at 2.8%, up from the previous forecast of 2.7%.

“The Monetary Board is of the view that the manageable inflation outlook continues to allow the BSP to maintain an accommodative policy stance,” Diokno said in a news briefing.

The BSP’s policy statement “suggested a long pause on rates, balancing the competing considerations of elevated inflation and an uncertain growth outlook”, ANZ economists said in a note.

But they said the BSP has turned “more cautious on the underlying inflationary impulse, which it now expects to remain above its target band at least until the third quarter”.

Other economists are not ruling out some policy tightening if inflation does ease back to within the target range soon.

“The central bank may consider a rate hike if inflation remains stubbornly high, which could dis-anchor inflation expectations and spark second-round effects such as wage and transport fare adjustment,” said ING senior economic Nicholas Antonio Mapa. (Reporting by Neil Jerome Morales, Karen Lema and Enrico Dela Cruz; Editing by Ana Nicolaci da Costa and Kim Coghill)

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