BSP keeps policy rates unchanged

The Bangko Sentral ng Pilipinas (BSP) kept policy rates steady for the third consecutive meeting, noting that while inflation conditions already improved, upside risks still remained.

In a briefing on Thursday, BSP Senior Assistant Governor Iluminada Sicat said the Monetary Board of the BSP, at its meeting on Wednesday, kept the BSP’s target reverse repurchase (RRP) rate unchanged at 6.5 percent.

The interest rates on the overnight deposit and lending facilities were kept at 6 percent and 7 percent, respectively.

“The overall outlook for inflation remains broadly unchanged,” Sicat said.

The latest baseline forecast showed that inflation will likely settle at 3.6 percent this year, slightly lower than the 3.7 percent earlier forecast of the BSP, while the projection for 2025 was unchanged at 3.2 percent.

“Equally important, the BSP’s latest survey of external forecasters shows inflation expectations to be more firmly anchored, with mean forecasts remaining within the [2 to 4 percent] target range for both 2024 and 2025,” Sicat said.

The latest risk-adjusted inflation forecast for 2024, meanwhile, eased to 3.9 percent from the 4.2 percent in the previous meeting in December.

For 2025, the risk-adjusted inflation forecast is at 3.5 percent.

BSP Monetary Policy Research Group Director Dennis Lapid said the risk-adjusted forecasts already “incorporate all of the various risks that we were able to identify.”

“Our inflation forecast are slightly lower for 2024 and this is in recognition of the risks partially diminishing for this year,” he said.

“The forecast path has been revised on account of the lower-than-expected actual inflation for December and January, some relative appreciation of the peso since November, and also the lower path for global crude oil prices,” he added.

Headline inflation eased to 3.9 percent in December last year and further decelerated to 2.8 percent in January this year.

The upside risks to the inflation forecasts are linked mainly to higher transport charges, increased electricity rates, higher oil and domestic food prices, and the additional impact on food prices of a strong El Niño episode.

On the other hand, the implementation of government measures to mitigate the impact of El Niño weather conditions is the primary downside risk to the outlook.

“While we recognized that the risks have diminished especially for this year, the MB also continues to see the risks to the baseline projection has been still weighted towards the upside,” Lapid said.

Moving forward, Sicat said government measures to minimize the impact of El Niño, such as the recent agreement with Vietnam to secure rice supply over the next five years, is encouraging.

“Moreover, the efforts to increase productivity in the rice sector, including the distribution of drought-resistant seeds, are a step in the right direction,” she said.

Sicat added the country’s growth momentum also remains intact over the medium term, but noted that economic activity will likely moderate in the near terms as the full impact of the BSP’s prior monetary policy tightening continues to manifest.

“The BSP remains ready to adjust its monetary policy settings as necessary in keeping with its primary mandate to safeguard price stability,” she said. (PNA)

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