In a ‘prudent’ move, BSP keeps key rate at 6.5%

MANILA, Philippines  — The Bangko Sentral ng Pilipinas (BSP) has kept its ultratight monetary policy settings, a widely expected decision that monetary authorities deemed to be a “prudent” move amid persistent risks to its inflation outlook.

At its first policy meeting this year on Wednesday, the Monetary Board (MB) left the target reverse repurchase rate untouched at 6.5 percent, a 16-year high. The BSP made the announcement at a press conference on Thursday.

It was a decision that had been repeatedly telegraphed by the BSP to the market weeks ahead.

In a statement, the central bank said it deemed it “appropriate” to keep monetary policy settings unchanged in the near term “in consideration of the prevailing risks.”

“While we see some improvement in inflation, we still consider taking a more prudent stance at this moment,” Iluminada Sicat, sector in charge of the BSP’s monetary and economics unit, said at a press conference.

READ: PH inflation slowed to 2.8% in January

“As soon as we see a firmer indication of inflation trend going back to target range, there could be scope for a rate cut,” Sicat added.

Less hawkish

Data showed inflation softened to 2.8 percent in January, the lowest reading in over three years. That was the second consecutive month that price growth moderated to within the BSP’s 2 to 4 percent target after hovering above that range for 20 months.

Banks use the BSP’s benchmark rate as a guide when charging interest rates on loans. By making borrowing costs more expensive, the BSP wants to temper strong demand for commodities with limited supply. This, in effect, tames inflation.

READ: BSP braces for El Niño impact

The last time the BSP delivered an anti-inflation rate hike was during an off-cycle decision in October last year, when the MB lifted the key rate by 25 basis points (bps). Overall, the BSP had raised its policy rate by a total of 450 bps in the current cycle, among the most aggressive in Asia.

What’s worrying the BSP at the moment are higher transport charges and electricity rates, as well as costlier oil and domestic food prices. The central bank is also wary of the additional impact on food prices of a strong El Niño episode.

Growth outlook

The BSP yesterday also sounded more downbeat on the growth outlook, acknowledging that the recent tightening cycle would weigh on the consumption-reliant economy that grew 5.6 percent last year, which missed the government’s growth target of 6 to 7 percent.

For this year, the BSP said inflation would ease in the first quarter before potentially soaring above the target anew in the second quarter as favorable base effects fade. From there, price growth is projected to return to the target band in the third quarter to end the year at an average of 3.6 percent, a tad lower than the BSP’s previous baseline forecast of 3.7 percent.

READ: PH GDP growth in ʼ24 to accelerate to 6.2%

Read more: https://business.inquirer.net/444130/ph-gdp-growth-in-%CA%BC24-to-accelerate-to-6-2#ixzz8RoXuD2OU
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That said, Sicat admitted that the central bank is staying “hawkish,” but the stance was not as intense as it was before.

“We need to maintain our hawkish position, but in terms of tone it’s not as strong as what we had in December,” she said. “We continue to be hawkish looking at developments here and abroad.”