- BSP holds key rate at 6.25%, after 425 bps hikes
- BSP lowers 2023, 2024 inflation forecasts
- Likely pause in next two to three meetings – governor
- Cut in RRR likely at BSP’s June meeting
MANILA— The Philippines central bank kept its benchmark interest rate steady on Thursday, as expected, and signaled a continued pause in policy tightening for the next two to three meetings, after lowering inflation forecasts for this year and next.
The Bangko Sentral ng Pilipinas (BSP) kept the benchmark overnight reverse repurchase facility rate at 6.25% PHCBIR=ECI, after cumulative hikes of 425 basis points (bps) since May last year to curb high inflation.
The BSP joins a growing number of banks globally that are pausing months-long tightening campaigns as price pressures moderate. However, it also signaled its readiness to resume raising rates “to respond to emerging threats to inflation”.
“The BSP stands ready to resume monetary tightening as necessitated by emerging data,” Governor Felipe Medalla said.
Only six out of 22 economists in a Reuters poll had predicted a 25 bps hike at Thursday’s meeting, while the rest had expected the BSP to take a break from policy tightening.
The BSP’s decision to pause its most aggressive rate hiking cycle in years comes after inflation eased in April for the third straight month, though the 6.6% headline figure remained well outside the central bank’s 2%-4% target.
The BSP’s decision also followed data showing economic growth cooled in the first quarter.
“With inflation falling back and headwinds to the economy mounting, we expect rates to be left unchanged for the rest of 2023, with cuts likely early next year,” Capital Economics senior Asia economist Gareth Leather said in a note.
The improving consumer price outlook, with the BSP expecting inflation to be within target by the last quarter, prompted the central bank to trim its inflation forecast for this year and next to 5.5% and 2.8%, respectively, from 6.0% and 2.9% previously.
Still, the BSP said inflation risks remain “largely tilted towards the upside” due mainly to food supply constraints.
Medalla said the BSP is likely to keep the key rates at current levels for two to three more policy meetings.
“A prudent pause also allows monetary authorities to further assess how macroeconomic and financial conditions will evolve in view of tighter global financial conditions,” he said.
At the same time, Medalla hinted at a much-anticipated reduction in banks’ reserve requirement ratio (RRR) at the June policy meeting.
“We expect the BSP to maintain policy rates at 6.25% in the coming months, while reducing RR by 200 bps to 10% in June,” ING senior economist Nicholas Mapa said.
—Reporting by Neil Jerome Morales and Enrico Dela Cruz; Editing by Martin Petty and Kim Coghill