Monetary Board Maintains Policy Settings

At its meeting on monetary policy today, the Monetary Board decided to keep the interest rate on the Bangko Sentral ng Pilipinas’ (BSP) overnight reverse repurchase facility at 6.25 percent.

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

Latest baseline projections continue to show a return to inflation target in the fourth quarter of 2023 despite a generally higher path for inflation relative to the previous forecast from the monetary policy meeting in June, reflecting mainly the impact of higher international oil prices.

Average inflation for 2023 is seen to reach 5.6 percent, while the average inflation forecasts for 2024 and 2025 now stand at 3.3 percent and 3.4 percent, respectively.

Meanwhile, inflation expectations for 2023 have remained steady, while those for 2024 and 2025 have declined slightly.

Nonetheless, the balance of risks to the inflation forecast continues to lean towards the upside.

Potential price pressures are linked to the impact of possible higher transport charges; higher minimum wage adjustments; persistent supply constraints on key food items; and the effects of El Niño weather conditions on food prices and power rates.

Meanwhile, a weaker-than-expected global economic recovery remains the primary downside risk to the inflation outlook.

The Monetary Board also recognized the challenging outlook for economic growth, as the weaker gross domestic product (GDP) outturn for the second quarter of 2023 reflected a broad-based slowdown in domestic demand.

Household consumption slowed due to elevated commodity prices, while government spending contracted relative to the previous year.

Given these considerations, the Monetary Board deemed it appropriate to maintain monetary policy settings to allow a moderation of inflation even as authorities continue to assess the emerging risks to the inflation outlook.

Authorities noted that the strength of economic activity going forward is likely to moderate as pent-up demand wanes and the full impact of prior monetary policy tightening continues to manifest.

At the same time, fiscal impulse through programmed spending could support the growth momentum.

The fiscal authorities are now pushing agencies to ramp up spending to fulfill the 2023 public expenditure program. Sustained non-monetary measures remain crucial in addressing lingering supply-side pressures on prices.

The BSP said it remains prepared to respond as necessary to safeguard the inflation target, in keeping with its primary mandate to ensure price stability.