BSP keeps rates on hold as price risks recede

February 15, 2024 - 4:24 PM
(Photo from BusinessWorld)
  • Central bank keeps policy rate at 6.5%, as expected
  • Lowers inflation forecast for 2024 to 3.9%
  • BSP: remains ready to adjust monetary policy settings as needed
  • Some analysts predict rate cut may come as early as May

 The Philippine central bank kept its benchmark interest rate steady at 6.50% for a third straight meeting on Thursday, as expected, with inflation on track to settle within its 2%-4% target for the year.

Risks to the inflation outlook have “receded”, the Bangko Sentral ng Pilipinas (BSP) said but they “remain tilted toward the upside” and therefore warranted caution.

Analysts said while economic growth held up surprisingly well last quarter, headwinds were growing and could prompt a rate cut as early as May.

The central bank slightly lowered its risk-adjusted inflation forecast for 2024 to 3.9% from 4.2% previously, while the projection for 2025 was slightly raised to 3.5% from 3.4%. Both estimates were on the upper band of the central bank’s comfort range.

“The BSP remains ready to adjust its monetary policy settings as necessary in keeping with its primary mandate to safeguard price stability,” Governor Eli Remolona said in a statement.

Upside risks to inflation, the central bank said could stem from higher transport, utility and fuel costs, and a potential increase in food prices due to the impact of a strong El Nino.

All 24 economists in a Reuters poll expected the central bank to leave its target reverse repurchase rate PHCBIR=ECI unchanged, but some expect the BSP to support the economy as pressures intensify.

“With inflation likely to stay low and headwinds to the economic recovery mounting, we expect the central bank to cut interest rates around the middle of the year,” Capital Economics said in a note.

Capital Economics expects the central bank to reduce rates by a total of 200 basis points next year.

BSP Senior Assistant Governor Iluminada Sicat told a media briefing a decision to cut rates would hinge on a sustained deceleration in inflation. She added that the central bank’s future policy moves would depend more on domestic events.

The central bank has raised rates by 450 basis points since May 2022, including an off-cycle hike in October.

Annual inflation was at 2.8% in January, the slowest in more than three years, on lower price increases in food, utility and fuel prices.

 Reporting by Mikhail Flores and Neil Jerome Morales; Additional reporting by Karen Lema; Editing by Martin Petty and Jacqueline Wong