STEADY. Bangko Sentral ng Pilipinas (BSP) Monetary Policy Sub-Sector Senior Assistant Governor Iluminada Sicat (from left to right), BSP Governor Felipe Medalla, and BSP Deputy Governor Francisco Dakila Jr. BSP’s policy-making Monetary Board maintained anew the central bank's key policy rates on Thursday (June 22, 2023) on expectations for the sustained deceleration of inflation rate. (Photo by Joann S. Villanueva)
MANILA – Bangko Sentral ng Pilipinas’ (BSP) policy-making Monetary Board (MB) kept for the second rate-setting meeting the central bank’s key rates after noting indications of a continued slowdown of domestic inflation rate.
With the latest MB decision, the BSP’s overnight deposit rate remains at 5.75 percent, the overnight reverse repurchase (RRP) rate at 6.25 percent, and the overnight lending rate at 6.75 percent.
In a briefing on Thursday, BSP Governor Felipe Medalla said the inflation rate is expected to continue decelerating until at least 2025, even as average inflation for next year was revised up slightly due largely to the continued reopening of the economy.
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“While the domestic growth momentum is expected to remain intact over the near term, recent demand indicators suggest a likely moderation in economic activity over the policy horizon, reflecting the impact of the BSP’s cumulative policy rate adjustments as well as weak global growth prospects,” he said.
The BSP’s key rates were first maintained during the MB meeting last May 18.
In terms of inflation forecasts, the figure for 2023 was slashed to 5.4 percent from 5.5 percent during the MB rate-setting meeting last May.
On the other hand, the 2024 projection was hiked to 2.9 percent from 2.8 percent.
For 2025, the forecast is 3.2 percent, a figure derived after assessing the possible path of interest rate and assumptions on wage adjustments, among others.
During the same event, BSP Deputy Governor Francisco Dakila Jr. said the 2024 average inflation forecast has been revised considering the continued reopening of the economy and the impact of a more hawkish Federal Reserve.
“Opening of the economy means stronger economic activity and of course demand prospects are now stronger than what we have earlier assessed in the May meeting. That could have some impact on prices,” he said.
Medalla, however, clarified that “the main source of inflation is not the opening of the economy” but the impact of supply shocks on the rate of price increases.
“So, truly, this inflation is supply-driven,” he said.
The central bank chief said monetary authorities have noticed that the worst supply shocks have passed, with the month-on-month inflation posting slower growth since last February.
After hitting a 14-year high 8.7 percent rate last January, the domestic inflation rate slowed to 6.1 percent last May.
BSP officials forecast this to decline to within the government’s 2 to 4 percent target band in the last quarter of this year.
Asked whether the sustained deceleration of the inflation rate is a factor for a cut in the BSP’s key rates in the near term, Medalla said he wants to see at least two consecutive months of below 4 percent inflation rate before considering a possible reduction in the central bank’s rate.
In terms of the impact of an eventual cut in the Federal Reserve’s key rates, he said more data are still needed.
Medalla said that although the main driver of the BSP’s key rate decision to date is the developments on inflation rate, it is also hard not to adjust rates in case the Federal Reserve slashes its key rates by 50 basis points because of its implication on the peso.
“The error of cutting too soon is a lot more serious than the error of cutting too late,” he added. (PNA)
