BSP keeps benchmark rate at 16-year high

The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) on Thursday decided to keep policy rates unchanged at 16-year high as inflation outlook has moderated moving forward, even as risks continue to skew to the upside.

According to BSP Deputy Governor Francisco Dakila, the Monetary Board kept the target reverse repurchase (RRP) rate at 6.50%, the overnight deposit facility rate at 6.0%, and the overnight lending facility rate at 7.0%.

This follows the off-cycle 25-basis-point hike made in the past month, bringing the benchmark rate to the highest in 16 years since it was kept at 7.5% in May 2007.

“The latest projections indicate that the inflation outlook has moderated over the policy horizon,” BSP Governor Eli Remolona Jr said in a statement read by Dakila during a briefing in Manila City.

The central bank has downgraded its risk-adjusted inflation outlook for this year to 6.1% from its previous projection of 6.2%, citing the slower-than-expected October print of 4.9%, and the strength of the Philippine peso.

It also adjusted downward its 2024 risk-adjusted inflation outlook to 4.4% from its previous outlook of 4.7%, and for 2025 to 3.4% from the previous projection of 3.5%.

For the baseline projections, the BSP expects inflation to average 6.0% this year, 3.7% in 2024, and 3.2% in 2025.

“(T)he balance of risks to the inflation outlook still leans significantly toward the upside, notwithstanding the recent improvement in food supply conditions,” Remolona said.

“Key upside risks are associated with the potential impact of higher transport charges, electricity rates, and international oil prices, as well as of higher-than-expected minimum wage adjustments in areas outside the National Capital Region,” he added.

Regional wage boards approved an increase in the daily minimum wages in the Ilocos Region and Western Visayas last month, and in the Zamboanga Peninsula earlier this month.

“Given these considerations, the Monetary Board noted that keeping the policy rate steady will allow policy interest rate adjustments, including the interest rate increase in October, to continue to work their way through the economy,” Remolona said.

“Guided by incoming data, the BSP remains prepared to resume monetary policy tightening as necessary to steer inflation towards a target-consistent path, in line with its price stability mandate,” he added.

The governor said that the rebound in the third quarter economic growth, recorded at 5.9%, supports the view that the country’s medium-term growth prospects remain “largely intact,” despite expectations that pent-up demand will wane in the near term.

An economist earlier said the BSP is expected to keep policy rates at a 16-year high until the third quarter of 2024, when rate cuts would be implemented. —KBK, GMA Integrated News