BSP’s Medalla sees reason to pause, maintain benchmark rate

As the June 22 policy meeting approaches, Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla said there are sufficient justifications to continue with the current benchmark rate of 6.25 percent.

Medalla emphasized that the downward trajectory of inflation is a compelling rationale to exercise caution and pause during the upcoming meeting.

This marks the second time the BSP will maintain the existing key rates, following the May 18 meeting that concluded nine consecutive rate hikes.

He reiterated that inflation is steadily declining and expected to continue its gradual downward trend until 2024.

He stood by his earlier statement that inflation would dip below four percent by September or October.

However, Medalla expressed concern about market perceptions regarding the interest rate differential between the BSP rate and the US Federal Reserve rate, and its impact on the exchange rate.

While the Fed rates are currently on hold, the US interest rates remain on the hawkish side, signaling the potential for future increases.

The BSP has been maintaining an interest rate differential of 100 to 125 basis points (bps), with the BSP rate at 6.25 percent and the US Fed rate at 5.25 percent.