The Monetary Board decided to keep the Bangko Sentral ng Pilipinas’ Target Reverse Repurchase (RRP) Rate steady as the outlook for inflation for this year slightly eased from the previous meeting.
The key rate remains at 6.50 percent. The interest rates on the overnight deposit and lending facilities were kept at 6 percent and 7 percent, respectively.
Iluminada Sicat, BSP senior assistant governor, said the latest risk-adjusted inflation forecast for 2024 eased to 3.9 percent from 4.2 percent in the previous meeting in December.
For 2025, the risk-adjusted inflation forecast is relatively steady at 3.5 percent from 3.4 percent.
“Equally important, the BSP’s latest survey of external forecasters shows inflation expectations to be more firmly anchored, with mean forecasts remaining within the target range for both 2024 and 2025,” said Sicat in reading the statement of the Monetary Board.
The Board noted the risks to the inflation outlook have receded but remain tilted toward the upside.
“The upside risks to the inflation forecasts are linked mainly to higher transport charges, increased electricity rates, higher oil and domestic food prices, and the additional impact on food prices of a strong El Niño episode. On the other hand, the implementation of government measures to mitigate the impact of El Niño weather conditions is the primary downside risk to the outlook,” Sicat added.
The country’s overall inflation slowed down further to 2.8 percent in January mainly due to slower price increases of food and non-alcoholic beverages and housing, water, electricity, gas and other fuels.
January’s rate is the slowest in three years–since the 2.3 percent inflation rate recorded in October 2020. It was also slower than the previous month’s 3.9 percent.
Core inflation, which excludes selected food and energy items, decelerated to 3.8 percent in January 2024 from 4.4 percent in the previous month. In January 2023, core inflation was higher at 7.4 percent.
The Board also noted the sustained expansion in output in the fourth quarter of last year “reaffirms the BSP’s view that the country’s growth momentum remains intact over the medium term.”
“However, recent indicators also suggest that economic activity could moderate in the near term as the full impact of the BSP’s prior monetary policy tightening continues to manifest,” Sicat added.
Michael Ricafort, RCBC chief economist, said the move was “widely expected,” adding that with inflation already back to within the central bank’s target range of between 2 and 4 percent “would further support the economic recovery narrative.”
“Provided no escalation of geopolitical risks particularly on the Israel-Hamas war and the potential effects on world oil prices, also provided no El Nino drought damage that tends to increase food prices, headline inflation could still well within the BSP inflation target to 3 percent by February-April 2024,” Ricafort said.
“The BSP recently continued to signal the need to keep monetary policy tight if necessary to help anchor both inflation and inflection expectations, especially in ensuring the continued achievement of the BSP’s inflation target and fulfill the price stability mandate, amid geopolitical risks,” Ricafort added.
“Further local policy rate pause or even rate cut/s could already be possible for the coming months, as fundamentally supported by the easing inflation trend,” he added.
The Monetary Board said it “remains ready to adjust its monetary policy settings as necessary in keeping with its primary mandate to safeguard price stability.”
