Inflation worries persist but BSP stands pat on rates

MANILA, Philippines  -Upward pressures on prices of goods and services that may keep headline inflation in the Philippines among the highest in Asia continue to prevail, but the Monetary Board (MB) kept the key policy rate of the Bangko Sentral ng Pilipinas (BSP) unchanged at 6.5 percent.

In a press briefing, MB Chair and BSP Governor Eli Remolona Jr. said key upside risks are associated with potential pressures emanating from higher transport charges, increased electricity rates and higher oil prices.

Based on the BSP’s latest outlook, full-year average inflation in 2023 is expected to remain—for the second year in a row—above the target range of 2 percent to 4 percent.

READ: 2024 inflation seen slowing to 2-4%

Meanwhile, the 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.

Still, Remolona said that the balance of risks to the inflation outlook still leans significantly toward the upside.

On the other hand, 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.

Further, 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.

“With the sum of recent information, the Monetary Board continues to see the need to keep monetary policy settings sufficiently tight to allow inflation expectations to settle more firmly within the target range,” Remolona said.

READ: PH central bank says to keep policy tight despite an easing in inflation

In a commentary, United Kingdom-based Pantheon Macroeconomics said yesterday’s pause was widely expected, describing this as a move that is “more than reasonable.”

This is so considering that the monthly inflation read at 4.1 percent in November, less than half as fast as the 8.7-percent peak recorded last January.