BSP lowers inflation outlook, keeps rates unchanged

The Bangko Sentral ng Pilipinas (BSP) decided to keep policy rates unchanged at 16-year-highs for the third straight meeting this week, even as it downgraded its inflation outlook for this year.

In a briefing on Thursday, BSP senior assistant governor Iluminada Sicat said the Monetary Board kept the target reverse repurchase (RRP) rate at 6.5%, the overnight deposit rate at 6.0%, and the overnight lending facility rate at 7.0%.

The meeting was held on Wednesday, February 14, but results were only released on Thursday, marking the third straight meeting that the Monetary Board kept rates at 16-year-highs since the benchmark rate was kept at 7.5% in May 2007.

“The risks to the inflation outlook have receded but remain tilted toward the upside,” BSP governor Eli Remolona said in a prepared statement.

The central bank said its risk-adjusted inflation forecast for the year was adjusted downward to 3.9% from the 4.2% in December, while it hiked its risk-adjusted inflation outlook for 2025 to 3.5% from 3.4% previously.

Among the upside risks to inflation are the higher transport charges, increased electricity rates, higher oil and domestic food prices, and the additional impact of the El Niño on food prices.

The state weather bureau PAGASA officially announced the start of El Niño in July 2023, which the World Meteorological Organization (WMO) expects to last until at least April 2024, with the National Irrigation Administration (NIA) projecting a 1.5-million metric ton (MT) loss in palay or unmilled rice.

The BSP noted, however, that while the El Niño is expected to add 0.02 percentage points to inflation this year, the implementation of government measures to counter the impact is the primary downside risk to the outlook.

“The sustained expansion in output in Q4 2023 reaffirms the BSP’s view that the country’s growth momentum remains intact over the medium term,” the central bank said.

“However, recent indicators also suggest that economic activity could moderate in the near term as the full impact of the BSP’s prior monetary policy tightening contiunes to manifest,” it added.

The central bank raised key policy rates by 450 basis points since May 2022, in a bid to tame inflation which averaged 6.0% in 2023, higher than the target range of 2.0% to 4.0%. — BM, GMA Integrated News