BSP keeps rates steady in off-cycle meeting, inflation seen to breach target

The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) on Thursday decided to hold an off-cycle meeting, four weeks ahead of the next schedule, during which it decided to pause on its policy easing even as inflation is expected to breach the target range this year.

According to BSP governor Eli Remolona Jr., the Monetary Board decided to keep rates unchanged at three-year lows — the target reverse repurchase rate at 4.25%, the overnight deposit rate at 3.75%, and the overnight lending rate at 4.75%.

This comes even as the central bank hiked its inflation forecast for the year to 5.1%, above its 2.0% to 4.0% target range, given global uncertainties such as the impact of the armed conflict in the Middle East on global oil prices.

The inflation forecast for 2027 was also raised to 3.8% from 3.2% previously, which Remolona described as "very reassuring."

“We kept the policy rates steady today because we forecast headline inflation will move back toward the tolerance range by 2027, and inflation expectations remain well-anchored. At the same time, the weak aggregate demand would help prevent inflation from rising even further,” Remolona said in a virtual briefing.

“Monetary policy will focus on addressing likely second-round effects of the oil price shocks. For that, we will remain vigilant, we will be guided by data, and we will act as needed to pursue our primary mandate,” he added.

Thursday’s off-cycle policy meeting came four weeks ahead of the next schedule on April 23, as Remolona said the Monetary Board took into consideration the difference in data since the last policy meeting on February 19.

“We call for an off-cycle meeting whenever we feel that the data might have changed a lot. For now, we expect that the next policy meeting would be scheduled on April 23,” Remolona said, adding that the Monetary Board would hold meetings “as needed” if the Middle East conflict continues.

Since the February policy meeting, the United States and Iran have entered a continuously intensifying conflict in the Middle East, projected to have second-round effects on transport fares, food prices, and wages.

The Philippine peso has also since hit several all-time lows, closing Monday, March 23, at P60.3:$1.

“So far it hasn’t merited heavy intervention. At the same time, we understand that the weakness of the peso is not necessarily a bad thing. The peso, where it’s going, seems to help with our current account deficit, seems to help with our exports. It’s not necessarily a bad thing,” Remolona said.

The BSP has also downgraded its economic growth outlook for 2026 to 4.4% from 4.6% previously, which would mean that the Philippines would miss its target for the fourth straight year.

“Unusual inflation is now driven almost entirely by supply shocks for which monetary policy cannot do very much, but it can still do something about growth,” Remolona said.

“Our mandate is to maintain price stability conducive to balanced and sustained growth, so growth is an implied mandate, although I would say price stability is the main mandate,” he added.

Given the conditions, Remolona said the BSP is also considering providing regulatory relief similar to what was implemented during the COVID-19 pandemic.

“We’re contemplating the same things we did with bank lending to the informal sector and to low-income, small businesses. We’re gonna have standardized restructuring if a loan defaults. We’re gonna postpone some payments depending on the sector, so very similar to what we did during COVID,” he said.—AOL, GMA Integrated News