The Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas (BSP), kept the policy rate steady at at 6.25 percent Thursday amid the persistent elevated inflation.
It was the fourth pause in the tightening cycle by local monetary authorities, but BSP Governor and MB chairman Eli Remolona said a rate hike “remained on the table in November.”
The BSP started to call the monetary policy rate the target reverse repurchase (RRP) rate after the shift on Sept. 8, 2023 to a variable-rate format with a predetermined offer volume in the auction for the overnight RRP facility. The interest rates on the overnight deposit and lending facilities were retained at 5.75 percent and 6.75 percent, respectively.
“Rate cuts this year are off the table. But rate hikes are not off the table. How big? It depends on the data,” Remolona said, adding that “we are ready to raise if supply shocks are enough.”
The US Federal Reserve also left its benchmark interest rate unchanged on Wednesday for the second time in its past three meetings to the target range of 5.25 to 5.50 percent, which many considered a sign that it’s moderating its fight against inflation as price pressures eased.
The BSP’s baseline projections showed a slightly higher inflation path. It said inflation was projected to revert to the 2 percent to 4 percent target range by the fourth quarter of 2023 in the absence of further supply-side shocks.
It said while food and transport prices continued to drive headline inflation, core inflation moderated further, implying an easing in underlying pressures. Inflation expectations remain anchored to the target range over the policy horizon.
Average inflation is now seen to reach 5.8 percent in 2023, up from 5.6 percent previously, while the forecast for 2024 was adjusted to 3.5 percent from 3.3 percent. For 2025, the forecast is unchanged at 3.4 percent.
Remolona said the upward adjustments in the 2023 and 2024 inflation projections reflected the spillovers from weather disturbances, rising global crude oil prices and the recent depreciation of the peso.
“The balance of risks to the inflation outlook remains skewed toward the upside. The major upside risks to the inflation outlook are the potential impact of further adjustments in transport fares and electricity rates,” Remolona said.
He said the MB noted that recent indicators of domestic economic activity pointed to waning pent-up demand, even as the impact of prior monetary policy tightening continues to weigh on credit.
“Given these considerations, the Monetary Board deemed it appropriate to maintain its pause amid the emerging upside risks to the inflation outlook. Looking ahead, the BSP stands ready to resume its tightening actions in the face of upside risks and potential second-round effects that could dislodge inflation expectations,” he said.
The Monetary Board also reiterated the need for non-monetary interventions, including the temporary reduction of import tariffs with calibrated volumes and timely arrival of import commodities.
“The BSP reassures the public of its commitment to steer inflation towards a target-consistent path over the medium term, in line with its primary mandate to ensure price stability,” Remolona said.
Michael Ricafort, chief economist of Rizal Commercial Banking Corp., said local inflation could reach the BSP’s target range of 2 percent to 4 percent by the fourth quarter of 2023 or by the first quarter of 2024, despite higher rice and oil prices recently.
“Thus, if local inflation reaches the BSP’s target, this could support a possible cut in local policy rates as early as the first quarter of 2024 as signaled by some local authorities and could also support a possible cut in banks’ reserve requirements,” Ricafort said.