BSP keeps rates steady
MANILA -The Monetary Board kept the Bangko Sentral ng Pilipinas’ (BSP) policy rate at 6.5 percent as the inflation outlook “moderated over the policy horizon,” bolstering expectations among some analysts that interest rate hikes are over.
At the same time, the interest rates on the BSP’s overnight deposit and lending facilities are maintained at 6 percent and 7 percent, respectively.
Based on the BSP’s latest projections, full-year inflation is expected at 6.1 percent in 2023, slightly better than the 6.2 percent forecast in the previous Monetary Board meeting on Oct. 26.
Also, the BSP now expects inflation to settle at 4.4 percent in 2024 and 3.4 percent in 2025. Previously, the forecasts were 4.7 percent and 3.5 percent, respectively.
Meanwhile, the average non-BSP forecast matches that of the central bank’s, based on a survey of economists and analysts done from Nov. 9 to Nov. 15. They also expect the readout to be 4 percent in 2024 and 3.5 percent in 2025.
“Nevertheless, the balance of risks to the inflation outlook still leans significantly toward the upside, notwithstanding the recent improvement in food supply conditions,” BSP Deputy Governor Francisco Dakila Jr. said in a press briefing.
The BSP sees the greatest upside risk—that inflation would turn out to be higher than forecast—mainly from potential increases in transport fares, electricity rates and international oil prices.
There are also risks from higher-than-expected minimum wage adjustments in areas outside the National Capital Region and the nonextension of Executive Order No. 10, which temporarily lowered tariffs on key exports like rice, corn and coal.
Considering these, policy makers believed that keeping the benchmark rate unchanged will allow previous policy interest rate increases to continue to work their way through the economy.
The BSP’s policy rate has risen by a total of 4.5 percentage points since tightening started in May 2022, from a historic low of 2 percent.
“Looking ahead, the Monetary Board continues to deem it necessary to keep monetary policy settings sufficiently tight until a sustained downtrend in inflation becomes fully evident and inflation expectations are firmly anchored,” Dakila said.
United Kingdom-based Pantheon Macroeconomics said in a commentary that, barring any further unexpected supply shocks, the monthly inflation readout could still fall within the target range in November and December.
“From our perspective, [this closes] the door completely on additional rate hikes,” Pantheon Macroeconomics said.
At an economic briefing held in San Francisco, California, earlier on Thursday, BSP Governor Eli Remolona Jr. said that for 2024, the BSP’s outlook is that monthly inflation readouts would be within the target range “for most of the year,” expect that these might go above the upper limit of 4 percent between April and July.
“We’re not out of the woods yet, but we are within striking distance of the target range of 2 percent to 4 percent,” Remolona said, noting that the latest print was 4.9 percent in October.