The policy-making Monetary Board of the Bangko Sentral ng Pilipinas on Thursday kept the policy rate intact at 6.25 percent for a third time in a series.
The five-man Monetary Board at the moment, normally numbering seven, also decided to keep the rates at which it borrows from and lends to banks unchanged at 5.75 percent and 6.75 percent, respectively.
The decision is in keeping with expectations the policy rate will hold even though seven-month headline inflation of 6.8 percent at the moment remains elevated.
“The basic story remains the same. We have declining inflation and we expect it to be within target range” in the fourth quarter, BSP governor and Monetary Board chairman Eli M. Remolona Jr. said.
This developed even as the BSP recalibrated higher the forecast inflation this year to 5.6 percent from only 5.4 percent bared at the last rate-setting meeting.
Although the headline seven-month inflation average 6.8 percent, the outlook is for the rate to fall within the target 2 percent to 4 percent range in the waning months of the year.
The forecast is for inflation to fall further next year 3.3 percent and to 3.4 percent in 2025, Remolona said.
Deputy BSP governor Francisco G. Dakila Jr. said the adjustment was in recognition of upticks in local oil prices and of higher than anticipated wage adjustments in June when the minimum daily wage was raised by P40 in the National Capital Region to P610 for non-agricultural workers and to P573 for agricultural workers.
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, the BSP said. It recognized the balance of risks to the inflation forecast leans to the upside, the price pressures 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 .
Also, a weaker-than-expected global economic recovery remains the primary downside risk to the inflation outlook, the BSP said.
The Monetary Board also recognized the challenging outlook for economic growth, as the weaker 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.
It said 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.
It noted the fiscal authorities are pushing the various 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 said the BSP is prepared to respond as necessary to safeguard the inflation target, in keeping with its primary mandate to ensure price stability.
