Rates on hold; tightening still likely

By Niña Myka Pauline Arceo | The Manila Times
November 17, 2032

KEY interest rates went unchanged on Thursday as expected but monetary authorities said further tightening could be ordered to anchor inflation expectations.

Following an unscheduled 25-basis-point (bps) increase last month, the Monetary Board decided to keep the Bangko Sentral ng Pilipinas’ (BSP) policy rate at 6.50 percent.

The central bank’s overnight deposit and lending rates also stayed at 6.0 percent and 7.0 percent, respectively.

Key interest rates have been raised by a total of 450 bps since May last year in a bid to temper inflation, with pauses ordered during the prior four policy meetings as inflation began moderating from January’s 14-year high of 8.7 percent.

Consumer prices began rising anew in August and September, prompting the off-cycle rate hike, before cooling to 4.9 last month.

“The latest projections indicate that the inflation outlook has moderated over the policy horizon,” BSP Deputy Governor Francisco Dakila Jr. said.

“Supply side inflation pressures continue to ease due in part to the National Government’s nonmonetary interventions as well as seasonal factors,” he added.

The Monetary Board trimmed its risk-adjusted inflation forecast for 2024 to 4.4 percent from 4.7 percent in the previous meeting in October, still above the 2.0- to 4.0-percent target, while that for 2025 was also lowered to a within-target 3.4 percent from 3.5 percent.

Despite recent improvements in food supply conditions, risks to the inflation outlook remain tilted toward the upside.

“Key upside risks are associated with the potential impact of higher transport charges, electricity rates and international oil prices, as well as of higher-than-expected minimum wage adjustments in areas outside the National Capital Region,” Dakila said.

“Meanwhile, the impact of a weaker-than-expected global recovery as well as government measures to mitigate the effects of El Niño weather conditions could reduce the central forecast,” he added.

Considering these, Dakila said the BSP’s policymaking Monetary Board deemed it appropriate to maintain current interest rates to allow previous hikes to continue working their way through the economy.

Stronger-than-expected third-quarter economic growth, meanwhile, was said to support the view that medium-term prospects remained largely intact despite a continued easing in domestic demand.

“The BSP will also continue to assess how firms and households are responding to tighter monetary policy conditions, especially as credit growth continues to moderate,” Dakila said.

The central bank said the Monetary Board remained supportive of national government initiatives to maintain growth through program spending as well as nonmonetary interventions against inflation.

“Looking ahead, the Monetary Board continues to deem it necessary to keep monetary policy settings sufficiently tight until a sustained downtrend in inflation becomes fully evident and inflation expectations are firmly anchored,” Dakila said.

“Guided by incoming data, the BSP remains prepared to resume monetary policy tightening as necessary to steer inflation toward a target-consistent path, in line with its price stability mandate,” he added.


Source: https://www.manilatimes.net/2023/11/17/business/top-business/rates-on-hold-tightening-still-likely/1920265