BSP holds policy rates; easing eyed starting August
As expected, the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) held key policy rates in its May 16 meeting and indicated that it will likely ease policy rates starting August this year.
The Monetary Board is scheduled to meet in August.
“We are actually somewhat less hawkish than before, which means we could ease or cut rates Q3 (third quarter) or Q4 (fourth quarter) this year, so the second half of this year,” BSP Governor Eli Remolona Jr. said in a briefing on Thursday.
“Yes. Possibly by August this year,” Remolona said when asked about the timeline of the possible easing.
Earlier, Remolona said a 25-basis point (bps) reduction is possible once Philippine inflation settles at the mid-range point of the government’s target. The government has the the inflation target for this year 2% to 4%.
Remolona added that the BSP might cut rates twice in the second half of the year for a total of 50 bps.
At the early part of this year, there were hopes the BSP would start reducing policy rates in the second quarter of this year as there were hopes that inflation will settle within the lower range of the government’s target.
However, the inflation rate climbed for three straight months in February (2.8%), March (3.7%) and April (3.8%).
Remolona sees the inflation rate for April as better than expected.
“As you know, there was a good number in April, 3.8% [inflation]. That was mainly driven by rice inflation. But also, 3.8% was better than expected. Actually, it’s better than it looks because that included some positive base effects. It’s actually better, and then there were other factors for good news in terms inflation,” he added.
With the BSP retaining policy rate settings, its target reverse repurchase rate remained at 6.5%, while the interest rates on the overnight deposit and lending facilities will also remain at 6% and 7%, respectively.
BSP LATEST BASELINE FORECASTS
BSP deputy governor Francisco Dakila Jr. said the BSP’s latest baseline forecast was adjusted downward to 3.5% from the previous 3.8% for 2024; while the projection for 2025 went up to 3.3% from 3.2%.
The risk-adjusted inflation forecast for 2024 was also adjusted to 3.8% percent from the 4% in the previous meeting.
For 2025, the risk-adjusted inflation forecast rose to 3.7% from 3.5%.
Among the risk factors were incorporated into the BSP’s assessment of the forecast include higher transport charges, food prices, electricity rates, and global oil prices.
Hence, the BSP sees inflation temporarily accelerating in the coming months but returning within the target in the latter part of the year.
“That will still happen. It could be again because of positive base effects. We’re looking particularly the period May until July of this year. So, we just monitor the inflation,” he said.
“But even if there were to be some breach of the inflation target band, the expectation is that this will be temporary and then, there will be a reversion to the target band,” Dakila added.
To recall, the BSP increased policy rates three times last year due to elevated inflation. Last year, the inflation rate settled at 6% or higher than the 5.6% of 2022.
