BSP keeps policy at 16-year high, adjusts inflation outlook downward

The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) on Thursday decided to keep key policy rates unchanged at 16-year highs, even as its inflation projections for 2023 and 2024 were adjusted slightly downward.
 

In a briefing on Thursday, BSP Governor Eli Remolona said the Monetary Board kept the target reverse repurchase (RRP) rate at 6.5%, the overnight deposit rate at 6.0%, and the overnight lending facility rate at 7.0%.

This is the second straight month that the Monetary Board decided to keep rates at their current level — the highest in 16 years since the benchmark rate was kept at 7.5% in May 2007 — after the off-cycle 25-basis point hike made in October.

“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.

This comes as the Monetary Board adjusted its risk-adjusted inflation outlook for 2023 to 6.0% from 6.1% in its meeting in November. It also adjusted its 2024 outlook to 4.2% from 4.4%, while keeping the 2025 outlook unchanged at 3.4%.

The baseline inflation forecasts were kept unchanged at 6.0% for 2023, 3.7% for 2024, and 3.2% for 2025.

“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,” Remolona said.

“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,” he added.

Inflation is expected to settle within the government’s 2.0% to 4.0% target in the first quarter of next year, mainly due to base effects. Inflation clocked in at 8.7% in January, 8.6% in February, and at 7.6% in March this year.

El Niño in 2024

It is then expected to be above the target in the second quarter of 2024 due to the El Niño, then return within the target range in the third quarter, and settle in the mid-point in the fourth quarter.

According to BSP Senior Assistant Governor Iluminada Sicat, the El Niño is projected to contribute 0.02 percentage points to inflation in 2024, with the peak impact expected to be felt during the second quarter.

“We added potential pressure for the first quarter, which our forecast is that there will be stronger El Niño and therefore, we incorporate that as well for our forecast in 2023,” she said in the same briefing in Manila City.

“We continue to adopt an outlook that El Niño would be moderate,” she added.

The state weather bureau PAGASA officially announced the start of El Niño in July, which the World Meteorological Organization (WMO) expects to last until at least April 2024, with the National Irrigation Administration (NIA) projecting a 1.5-million metic ton (MT) loss in palay or unmilled rice.

“In the coming quarters, the national government’s non-monetary interventions will remain crucial to sustain the disinflation process,” Remolona said.

“Going forward, the BSP remains ready to adjust monetary policy settings as necessary, in line with its mandate to ensure price stability,” he added. --RF, GMA Integrated News