The policy-making Monetary Board on Thursday held the rate at which it borrows from banks steady at 6.25 percent, the second such pause in the cycle of adjustments as worrisome headline inflation recedes some more in recent surveys.
The interest rates on the overnight deposit and lending facilities of the Bangko Sentral ng Pilipinas (BSP) were similarly retained at 5.75 percent and 6.75 percent, respectively.
Headline inflation slowed a fourth time in May this year to only 6.1 percent, the lowest since June last year.
The BSP said latest baseline projections continue to suggest a gradual return of inflation to the target band of 2‑4 percent over the policy horizon. Average inflation for 2023 is projected to settle at 5.4 percent, slightly lower than 5.5 percent previously, while the average inflation forecast for 2024 now stands at 2.9 percent from 2.8 percent. For 2025, inflation is expected to average at 3.2 percent. Inflation expectations for 2023 are also lower, while those for 2024 and 2025 appear to have settled firmly within the target range.
Both headline and core inflation decelerated further in May due mainly to slower increases in the prices of food and energy-related items, affirming expectations of a return to the target range by year’s end.
However, the balance of risks to the inflation outlook continues to lean towards the upside due to the potential impact of additional transport fare increases and minimum wage adjustments, persistent supply constraints of key food items, El Niño weather conditions, and possible knock-on effects of higher toll rates on agricultural prices. The impact of a weaker-than-expected global economic recovery remains the primary downside risk to the outlook.
While the domestic growth momentum is expected to remain intact over the near term, recent demand indicators suggest a likely moderation in economic activity over the policy horizon, reflecting the impact of the BSP’s cumulative policy rate adjustments as well as weak global growth prospects.
Given these considerations, the Monetary Board deems it appropriate to maintain current monetary policy settings to allow the BSP to further assess how inflation and domestic demand have responded to tighter monetary conditions. However, lingering upside risks to the inflation outlook also warrant continued vigilance against potential second-round effects.
Going forward, the BSP remains prepared to resume monetary tightening as necessary, in line with its data-dependent approach to ensuring price and financial stability.
