Monetary Board retains current policy settings

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

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

Based on the sum of new information and its assessment of the impact of previous monetary policy actions, the Monetary Board decided that a pause in monetary policy tightening was appropriate.

The BSP’s latest baseline projections continue to reflect a gradual return of inflation to the target band of 2‑4 percent over the policy horizon. Average inflation for 2023 is now projected to settle at 5.5 percent, lower than 6.0 percent previously, while the average inflation forecast for 2024 fell slightly to 2.8 percent.

Meanwhile, inflation expectations for 2024 and 2025 are steady and within the target range.

The Monetary Board also noted that while GDP growth has remained robust in the first quarter of 2023, demand indicators have also pointed to a potential moderation in the recent months, suggesting that previous policy rate increases by the BSP continue to work their way through the economy.

Moreover, the Monetary Board is encouraged by the recent mounting of whole-of-government actions to ease constraints on food supply.

Nevertheless, even as headline inflation has continued to decelerate with slower increases in the prices of food and energy-related items, core inflation has only eased marginally.

In addition, the balance of risks to the inflation outlook remains largely tilted towards the upside owing to persistent constraints in the supply of key food items, the potential impact of El Niño on food prices and utility rates, as well as the effects of possible additional adjustments in transportation fares and wages.

Meanwhile, the impact of a weaker-than-expected global economic recovery continues to be the primary downside risk to the outlook.

Given these considerations, the Monetary Board deems it prudent for the BSP to take a pause in monetary policy tightening while remaining ready to respond to emerging threats to inflation.

The Monetary Board also deems it necessary to keep the policy interest rate at its current level over the near term, as ongoing price pressures continue to warrant close monitoring.

A prudent pause also allows monetary authorities to further assess how macroeconomic and financial conditions will evolve in view of tighter global financial conditions.

Moving forward, the BSP will continue to monitor developments affecting the outlook for inflation and growth. The BSP stands ready to resume monetary tightening as necessitated by emerging data, consistent with its primary mandate to promote price and financial stability.