BSP lowers inflation outlook, keeps rates unchanged

The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) on Thursday decided to keep policy rates unchanged for the second straight meeting.

Following its policy meeting, BSP Governor Felipe Medalla said the Monetary Board kept the key rate for the overnight deposit facility at 5.75%, the overnight borrowing facility at 6.25%, and the overnight lending facility at 6.75%

This comes as the central bank now expects inflation to average 5.4% this year, slower than the 5.5% it projected during its meeting in May, citing the slower increases in prices of food and energy-related items in the past month.

Inflation clocked in at 6.1% in May, the fourth straight month of deceleration and the lowest since the 6.4% print recorded in July 2022, but still higher than the target range of 2% to 4%.

Medalla said the risks to the inflation outlook continue to lean towards the upside, amid the potential impact of additional transport fare increases and minimum wage adjustments, and persistent supply constraints on key food items.

The upward adjustments in the fares of the Light Rail Transit (LRT) are set to be implemented on August 2, as the government said the timing is already ripe given the country’s macroeconomic conditions.

“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,” Medalla said at a briefing in Manila.

The Philippine economy expanded by 6.4% in the first quarter of the year, down from 8.0% in the same quarter in 2022 and 7.1% in the last three months of the previous year.

Looking ahead, the BSP said inflation is expected to continue its deceleration for the rest of the year before falling within the target range by October.

“Given these considerations, the Monetary Board deems it appropriate to maintain current monetary policy settings to allow the BSP to further assess how inflation and domestic demand have responded to tighter monetary conditions,” Medalla said.

“Going forward, the BSP remains prepared to resume monetary tightening as necessary, in line with its data-dependent approach to ensuring price and financial stability,” he added.

For 2024, the Monetary Board expects inflation to come in at 2.9% from its earlier projection of 2.8%, due to the continued opening up of the economy and the impact of a more hawkish Federal Reserve. It is expected to average 3.2% in 2025.

Thursday’s policy meeting was the last before the end of the term of Medalla on July 3, 2023. President Ferdinand “Bongbong” Marcos Jr. has yet to make an announcement on who his successor would be.

Medalla is currently serving the unexpired term of his predecessor Benjamin Diokno, who also took over the rest of the term of late former Governor Nestor Espenilla, Jr. who passed away in February 2019. —KBK/RSJ, GMA Integrated News