BSP policy rate kept at 6.25%

Photo courtesy of Bangko Sentral ng Pilipinas Facebook Page

MANILA  -As expected, the Monetary Board (MB) kept the Bangko Sentral ng Pilipinas (BSP) key policy rate at 6.25 percent, saying that the latest baseline projections continue to suggest a gradual return of inflation to the target range of 2 percent to 4 percent over the next two years.

This is the second MB policy meeting in a row that the BSP overnight borrowing rate was unchanged after rising by a total of 4.25 points throughout the past 13 months from a historic low of 2 percent.

Similarly, the interest rates on the overnight deposit and lending facilities stayed at 5.75 percent and 6.75 percent, respectively.

Felipe Medalla, MB Chair and BSP Governor, said in a press briefing that average inflation for 2023 is now projected to settle at 5.4 percent, slightly lower than the previous projection of 5.5 percent.

Overall or headline inflation has receded for four months in a row to 6.1 percent in May from 8.7 percent in January. This brought the five-month average to 7.7 percent.

In May, both headline and core inflation—which excludes items whose prices change more quickly, such as food and energy—decelerated further due mainly to slower increases in the prices of these same items.

Medalla said the May readout affirmed expectations of a return to the target range—at least in the monthly readouts—by the end of the year.

For full-year 2024 and 2025, the BSP expects inflation to average at 2.9 percent and 3.2 percent, respectively.

“However, the balance of risks to the inflation outlook continues to lean toward the upside due to the potential impact of additional transport fare increases and minimum wage adjustments, persistent supply constraints of key food items, El Niño weather conditions, and possible knock-on effects of higher toll rates on agricultural prices,” Medalla said.

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“While the domestic growth momentum is expected to remain intact over the near term, recent demand indicators suggest a likely moderation in economic activity over the policy horizon, reflecting the impact of the BSP’s cumulative policy rate adjustments as well as weak global growth prospects,” he added.

In a report issued on June 22, Fitch Ratings said the growth of the global economy was expected to hold up, but interest rates are still going up and will likely stay high longer.

“Global growth is showing near-term resilience but with core inflation remaining stubbornly high, central banks will have to continue tightening policy in the coming months,” the global credit watchdog said in the June edition of its Global Economic Outlook (GEO).

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Fitch raised its forecast for global gross domestic product growth in 2023 to 2.4 percent from the 2 percent it forecast in the March edition of the GEO.

“With monetary policy adjustments and their impact on the (global) economy proving more protracted, the global growth outlook for 2024 has deteriorated,” the company added.