Monetary Board maintains policy settings

At its meeting on monetary policy today, the Monetary Board decided to maintain the Bangko Sentral ng Pilipinas’ (BSP) Target Reverse Repurchase (RRP) Rate at 6.25 percent.

Accordingly, the interest rates on the overnight deposit and lending facilities were retained at 5.75 percent and 6.75 percent, respectively.

Latest BSP baseline projections show a slightly higher inflation path.

Nonetheless, inflation is still projected to revert to the 2 to 4 percent target range by Q4 2023 in the absence of further supply-side shocks.

While food and transport prices continue to drive headline inflation, core inflation has moderated further, implying an easing in underlying pressures.

In addition, inflation expectations remain anchored to the target range over the policy horizon.

Average inflation is now seen to reach 5.8 percent in 2023 from 5.6 percent previously, while the forecast for 2024 likewise rose to 3.5 percent from 3.3 percent.

For 2025, the forecast is unchanged at 3.4 percent. The upward adjustments in the 2023 and 2024 projections reflect the spillovers from weather disturbances, rising global crude oil prices, and the recent depreciation of the peso.

The balance of risks to the inflation outlook remains skewed toward the upside. The major upside risks to the inflation outlook are the potential impact of further adjustments in transport fares and electricity rates.

At the same time, the Monetary Board noted that recent indicators of domestic economic activity pointed to waning pent-up demand, even as the impact of prior monetary policy tightening continues to weigh on credit.

Given these considerations, the Monetary Board deemed it appropriate to maintain its pause amid the emerging upside risks to the inflation outlook.

Looking ahead, the BSP stands ready to resume its tightening actions in the face of upside risks and potential second-round effects that could dislodge inflation expectations.

The Monetary Board also reiterated the need for non-monetary interventions, including the temporary reduction of import tariffs with calibrated volumes and timely arrival of import commodities.

The BSP reassures the public of its commitment to steer inflation towards a target-consistent path over the medium term, in line with its primary mandate to ensure price stability.