The policymaking Monetary Board yesterday decided to keep the key rate of the Bangko Sentral ng Pilipinas (BSP) steady as it points out that the “previous adjustments have continued to work their way through the economy.”
BSP’s Target Reverse Repurchase (RRP) Rate is still at 6.5 percent. The interest rates on the overnight deposit and lending facilities will remain at 6percent and 7 percent, respectively.
Eli Remolona, BSP governor and Monetary Board chief, said they continue to see the need “to keep monetary policy settings sufficiently tight to allow inflation expectations to settle more firmly within the target range.”
The Board stressed the balance of risks to the inflation outlook “still leans significantly toward the upside.”
“The overall outlook for inflation remains largely unchanged. The latest risk-adjusted inflation forecast for 2024 has declined to 4.2 percent from 4.4 percent in the previous meeting in November. For 2025, the risk-adjusted inflation forecast is unchanged at 3.4 percent. Equally important, the BSP’s latest survey of external forecasters shows that inflation expectations have been broadly anchored, with a mean forecast that is within range for both 2024 and 2025,” Remolona said.
The Monetary Board also noted that previous adjustments have continued to work their way through the economy, “as can be seen from the declining path for core inflation.”
“In the coming quarters, the national government’s non-monetary interventions will remain crucial to sustain the disinflation process. Going forward, the BSP remains ready to adjust monetary policy settings as necessary, in line with its mandate to ensure price stability,” Remolona said.
Remolona explained key upside risks are associated with potential pressures emanating from higher transport charges, increased electricity rates, and higher oil prices.
Meanwhile, the impact of a relatively weak global recovery as well as government measures to mitigate the effects of El Niño weather conditions could reduce the central forecast.
“At the same time, the country’s medium-term growth prospects remain firm, with strong demand expected in the fourth quarter due to sustained consumer spending and improved labor market conditions. The BSP will also continue to monitor how firms and households are responding to tighter monetary policy conditions alongside evolving domestic and external economic conditions,” Remolona said.
Michael Ricafort, RCBC chief economist, said the move was “widely expected by the markets” as “there is no urgency for more local policy rate hikes amid relatively stronger peso, lower global oil prices, still relatively better weather conditions that help ease food prices.”
“All of these factors are still conducive to the better anchoring of inflation to within the 2 percent-4 percent target by early 2024,” Remolona said.
“Provided no escalation of geopolitical risks particularly on the Israel-Hamas war and the potential effects on world oil prices, also provided no large storm/El Nino drought damage that tends to increase food prices, for the rest of the year, headline inflation could be around 4 percent for December for a 2023 average of about 6 percent and could ease further to below the 2 to 4 percent BSP inflation target by January,” Ricafort said.
“Thus, easing inflation trend in recent months, still relatively stronger peso exchange rate versus the US dollar in about 4 months, and 5-month lows for global crude oil prices would support a pause in local policy rates, or at least reduce the urgency for any additional local policy rate hikes, especially if the Israel-Hamas war does not escalate in the Middle East,” he added.
The Monetary Board’s action came a few hours after the US central bank kept its key interest rates unchanged for the third straight meeting, at the 22-year high of 5.25 percent-5.50 percent target range, but started to signal possible Fed rate cuts for 2024.
