BSP keeps policy rate steady at 6.25%

MANILA  -In a widely expected move, the Monetary Board (MB) again kept the Bangko Sentral ng Pilipinas (BSP) key policy rate at 6.25 percent, saying that the latest baseline projections continue to show a return of inflation to the target band by the fourth quarter this year

This is the third MB policy meeting in a row that the benchmark rate is unchanged, after the ones held in May and June.

MB chair and BSP Governor Eli Remolona Jr. said in a press briefing that inflation is expected to continue subsiding “despite a generally higher path for inflation relative to the previous forecast from the monetary policy meeting in June,” which reflects mainly the impact of higher international oil prices.

Since the MB’s previous policy meeting held last June 22, local pump prices of gasoline have had a net increase of P7.05 per liter. Similarly, the net increases of diesel prices at the pump amounted to P12.65 per liter, and of kerosene to P11.50 per liter.

Remolona said that with the continued pause on changes with the BSP’s overnight borrowing rate, the interest rates on the overnight deposit and lending facilities were retained at 5.75 percent and 6.75 percent, respectively.

There were no changes made even if the MB has raised their full-year forecast on the rate of growth in prices of goods and services in 2023 to 5.6 percent from the 5.5 percent that was pencilled in during the May 18 policy meeting.

Remolona described the revision in the forecast as “very slight,” but reiterated that the MB was ready to resume rate hikes “if needed.”

Further, the MB’s forecast for average inflation in 2024 was raised to 3.3 percent from 2.8 percent previously.

Still, Remolona said the latest forecasts affirm a return to the target band of 2 percent to 4 percent, although risks of an error continue to point to a higher actual readout.

Average inflation for 2023 is seen to reach 5.6 percent, while the average inflation forecasts for 2024 and 2025 now stand at 3.3 percent and 3.4 percent, respectively.

Meanwhile, inflation expectations for 2023 have remained steady, while those for 2024 and 2025 have declined slightly.

“Potential price pressures are linked to the impact of possible higher transport charges; higher minimum wage adjustments; persistent supply constraints on key food items; and the effects of El Niño weather conditions on food prices and power rates,” the BSP chief said.

By the BSP’s reckoning, the probability that rising prices of food and fuel would bring inflation above forecast is “medium.”

Also, the probability that wage hikes and the impact of El Niño would result in higher-than-expected inflation is “high.”

Still, there is a medium probability that a weaker-than-expected global economic recovery could result in lower-than-expected inflation.

“The (MB) also recognized the challenging outlook for economic growth,” Remolona said.