BSP maintains policy rates


After hiking key rates for nine consecutive rate setting meetings since May 2022, Philippine monetary authorities on Thursday maintained the Bangko Sentral ng Pilpinas’ (BSP) policy rates due mainly to deceleration of inflation rate.

Thus, the overnight reverse repurchase (RRP) rate is still at 6.25 percent, the overnight repurchase (RP) rate is at 6.75 percent and the overnight deposit rate is at 5.75 percent.

“Based on the sum of new information and its assessment of the impact of previous monetary policy actions, the Monetary Board decided that a pause in monetary policy tightening was appropriate,” BSP Governor Felipe Medalla said in a briefing on Thursday,

Thursday’s pause in the policy-making MB’s rate tightening moves is a change after the hikes in the key rates from its record-low 2 percent, with the upward adjustment aimed at helping address the jumps in inflation rate.

Relatively, the MB slashed the central bank’s average inflation forecast for this year from 6 percent to 5.5 percent and the 2024 projection from 3.1 percent to 2.8 percent.

Medalla said these changes “continue to reflect a gradual return of inflation to the target band of 2 4 percent over the policy horizon.”

He said inflation expectations for 2024 to 2025 “are steady and within the target range.”

He, on the other hand, noted that while domestic expansion remains robust in the first three months of this year “demand indicators have also pointed to a potential moderation in the recent months, suggesting that previous policy rate increases by the BSP continue to work their way through the economy.”

He said the Board is also “encouraged by the recent mounting of whole-of-government actions to ease constraints on food supply.”

He, however, pointed out that “even as headline inflation has continued to decelerate with slower increases in the prices of food and energy-related items, core inflation has only eased marginally.”

Domestic inflation rate hit its 14-year high if 8.7 percent last January but has slowed since then, with the April figure already at 6.6 percent, from month-ago’s 7.6 percent.

Core inflation, which excludes volatile oil and food items, is almost flat at 7.9 percent last April from month-ago’s 8 percent.

Inflation rate is expected to slow to within-target levels as early as in September this year.

Medalla said balance of risks to inflation outlook “remains largely tilted towards the upside owing to persistent constraints in the supply of key food items, the potential impact of El Niño on food prices and utility rates, as well as the effects of possible additional adjustments in transportation fares and wages.”

These are, however, countered by the lower-than-expected global economic recovery, he said.

“The Monetary Board also deems it necessary to keep the policy interest rate at its current level over the near term, as ongoing price pressures continue to warrant close monitoring. A prudent pause also allows monetary authorities to further assess how macroeconomic and financial conditions will evolve in view of tighter global financial conditions,” he said.


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