The Bangko Sentral ng Pilipinas (BSP) kept the overnight borrowing rate steady at 6.5 percent amid the slowdown in inflation in October and the stronger gross domestic product expansion in the third quarter.
The BSP, however, remained hawkish, saying it might resume monetary policy tightening if needed to make sure inflation remains within the target range.
BSP Deputy Governor Francisco Dakila Jr., who read the statement of board chairman and BSP Governor Eli Remolona who is in the US for the Philippine Economic Briefing in San Francisco, said the interest rates on the overnight deposit and lending facilities were maintained at 6.0 percent and 7.0 percent, respectively.
“The latest projections indicate that the inflation outlook has moderated over the policy horizon. The risk-adjusted inflation forecasts remain above the target for 2024 at 4.4 percent [from 4.7 percent in the previous meeting in October] and within the target for 2025 at 3.4 percent [from 3.5 percent],” Dakila said.
He said the BSP survey of external forecasters showed that inflation expectations for 2024 rose above the target range in the October 2023 survey and declined to the upper bound of the target in the November survey, while remaining anchored for 2025.
Supply-side inflation pressures continued to ease due in part to the national government’s non-monetary interventions as well as seasonal factors, he said.
Dakila said the balance of risks to the inflation outlook still leaned significantly toward the upside, notwithstanding the recent improvement in food supply conditions. 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.
Meanwhile, the impact of a weaker-than-expected global recovery as well as government measures to mitigate the effects of El Niño weather conditions could reduce the central forecast.
“Given these considerations, the Monetary Board noted that keeping the policy rate steady will allow previous policy interest rate adjustments, including the interest rate increase in October, to continue to work their way through the economy,” he said.
Dakila said that on balance, the rebound in the third-quarter GDP growth to 5.9 percent from 4.3 percent in the second quarter supported the view that the country’s medium-term growth prospects remained largely intact, even as pent-up demand continued to diminish in the near term.
“The BSP will also continue to assess how firms and households are responding to tighter monetary policy conditions, especially as credit growth continues to moderate,” Dakila said.
He said the Monetary Board reiterated its support for the government’s efforts to sustain growth through programmed spending and non-monetary intervention measures to mitigate the impact of lingering supply-side factors on inflation.
“Looking ahead, the Monetary Board continues to deem it necessary to keep monetary policy settings sufficiently tight until a sustained downtrend in inflation becomes fully evident and inflation expectations are firmly anchored,” he said.
Dakila said the BSP remained prepared to resume monetary policy tightening as necessary to steer inflation towards a target-consistent path, in line with its price stability mandate.
Inflation in October slowed to a three-month low of 4.9 percent from 6.1 percent in September, pulled down by slower increases in the prices of food and nonalcoholic beverages.
The board raised the policy rate by 25 basis points to 6.5 percent in an off-cycle move on Oct. 26 to rein in inflation.
Dakila said the BSP would remain data dependent whether it would tweak or not the policy settings in the coming months.