Philippines Central Bank Keeps Rates Constant And Tighter Policies As Inflation Forecasts are Lowered

By: Asia Business Outlook Team | Thursday, 18 May 2023

The Philippines central bank kept its benchmark interest rate steady on Thursday, as expected, and signalled 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 per cent, 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 signalled its readiness to resume raising rates "to respond to emerging threats to inflation".

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 per cent headline figure remained well outside the central bank's 2 per cent-4 per cent target.

The improving consumer price outlook allowed the central bank to trim its inflation forecast for this year and next to 5.5 per cent and 2.8 per cent, respectively, from 6.0 per cent and 2.9 per cent previously.

Still, the BSP said inflation risks remain "largely tilted towards the upside" due mainly to food supply constraints.

"The Monetary Board also deems it necessary to keep the policy interest rate at its current level over the near term," BSP Governor Felipe Medalla said.

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.