BSP holds benchmark rate at 6.5% amid persistent inflation risks

The Bangko Sentral ng Pilipinas’ (BSP) Monetary Board opted to maintain the benchmark rate at 6.5% on Thursday, citing the adequacy of its last off-cycle adjustment in tackling lingering inflationary pressures.

BSP Deputy Governor Francisco G. Dakila Jr. said that despite elevated risk-adjusted inflation forecasts compared to baseline projections, recent data showed that the inflation outlook has moderated over the policy horizon.

“Looking ahead, the Monetary Board continues to deem it necessary to keep monetary policy settings sufficiently tight until a sustained downtrend in inflation becomes fully evident and inflation expectations are firmly anchored,” said Dakila, reading BSP Governor Eli M. Remolona Jr.’s statement from the Philippine Economic Briefing held in the US.

“Guided by incoming data, the BSP remains prepared to resume monetary policy tightening as necessary to steer inflation towards a target-consistent path, in line with its price stability mandate,” Dakila said.

In an unscheduled policy move on October 26, the BSP raised the overnight target reverse repurchase (RRP) rate by 25 basis points to 6.5%.

For 2024, the risk-adjusted forecast stands at 4.4%, down from the previous 4.7%, with 2025 projected at 3.4 percent. Baseline forecasts show 6% for 2023 (up from 5.8%), 3.7% for 2024 (up from 3.5%), and a consistent 3.4% for 2025.

Key upside risks include higher transport charges, electricity rates, international oil prices, and unexpected minimum wage adjustments outside the National Capital Region. Downside risks could arise from a weaker-than-expected global recovery and government measures to counter El Niño effects.

Despite easing supply-side inflation pressures, the Monetary Board believes maintaining the policy rate steady will allow previous adjustments to work through the economy.

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