BSP keeps rates steady

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) maintained a hawkish pause as it kept interest rates unchanged with risks to inflation outlook remaining tilted substantially to the upside. In a press briefing, BSP Governor Eli Remolona Jr. said  the Monetary Board decided to keep the central bank’s target reverse repurchase rate (RRR) steady at 6.50 percent, the highest since the 7.50 percent recorded in May 2007.

Likewise, he said the interest rates on the overnight deposit and lending facilities will remain at six percent and seven percent, respectively.

The BSP chief pointed out that the balance of risks to the inflation outlook still leans significantly toward the upside.

“Key upside risks are associated with potential pressures emanating from higher transport charges, increased electricity rates and higher oil prices. Meanwhile, 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,” Remolona said.

He added that overall outlook for inflation remains largely unchanged.

“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.

The BSP has raised interest rates by a cumulative 450 basis points since May last year to tame inflation and stabilize the peso. This year alone, the central bank hiked key policy rates by 100 basis points.

He said that previous adjustments have continued to work their way through the economy, as seen from the declining path of core inflation.

Headline inflation averaged 6.2 percent from January to November, still above the BSP’s two to four percent target, despite easing sharply to 4.1 percent in November from 4.9 percent in October.

Likewise, core inflation, which strips the volatile oil and food prices, averaged 6.8 percent during the 11-month period after easing to 4.7 percent in November from 5.3 percent in October.

“In the coming quarters, the national government’s non-monetary interventions will remain crucial to sustain the disinflation process. Going forward, the BSP remains ready to adjust monetary policy settings as necessary, in line with its mandate to ensure price stability,” the BSP chief said.

Remolona said the country’s medium-term growth prospects remain firm, with strong demand expected in the fourth quarter due to sustained consumer spending and improved labor market conditions.

“The BSP will also continue to monitor how firms and households are responding to tighter monetary policy conditions alongside evolving domestic and external economic conditions,” he said.

BSP Assistant Governor Illuminada Sicat said the latest risk-adjusted inflation forecast for 2024 has declined to 4.2 percent from 4.4 percent in the previous meeting in November.

For 2025, Sicat said the risk-adjusted inflation forecast is unchanged at 3.4 percent.

Sicat said headline inflation may decline to within the two to four percent target range in the first quarter before climbing above the target in the second quarter of next year.

She said inflation expectations based on the survey of economists from Dec. 5 to 10 also showed a lower mean inflation forecast of six percent versus the previous results of 6.1 percent.

Likewise, she said inflation expectations also declined to 3.9 percent from four percent for 2024, but increased to 3.5 percent from 3.4 percent for 2025.

“As the governor has repeated many times, we need some firmer indications that inflation expectations are already anchored firmly within the target range and actual inflation has reverted back within the target path. So we must see that there are firm indications towards that trend,” Sicat said.

Remolona   said 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.

ING Bank senior economist Nicholas Mapa said the central bank reiterated that risks to inflation outlook remained tilted substantially to the upside.

“With inflation headed lower and the Fed (US Federal Reserve) dovish, more signs point to BSP being done with rate hikes,” Mapa said.

The US Fed decided to keep interest rates on hold also in its meeting.