The Bangko Sentral ng Pilipinas (BSP) announced Thursday that monetary officials decided to maintain interest rates after holding an off-cycle meeting to “reassure” the markets and send a signal that a rate hike would further weaken the economy.
The BSP made the decision to maintain key policy rates after implementing a 25-basis-point (bps) rate cut in February.
“We judged that an off-cycle policy meeting was called for,” BSP Governor Eli M. Remolona Jr. said during a briefing on the central bank’s monetary policy stance on Thursday.
“Globally, aside from oil, other commodity prices have climbed, notably fertilizer, which would add to food inflation,” Remolona said, adding that “Domestic fuel prices are rising.”
The seven-man Monetary Board (MB), the highest policy-making body of the BSP, met on Thursday and decided to maintain the policy rate at 4.25 percent.
Remolona said that while the MB sees upside risks to inflation, it noted that these risks are “largely supply-driven,” for which monetary policy has “limited effectiveness.”
At the same time, the BSP sees continued weak economic growth this year. As such, Remolona pointed out: “In that regard, to raise rates at this time would be painful.”
The BSP’s latest projection showed that headline inflation would average 5.1 percent this year. At the February 19 policy meeting, the BSP pegged average inflation forecast for 2026 at 3.6 percent.
The BSP’s target band for inflation is 2 percent to 4 percent.
The central bank said the impact of the oil prices and some of the spillovers of the oil prices on commodities would be felt by the second half of the year.
It said inflation could reach 3.5 percent in March, adding that the inflation print in April “could be even higher than that.”
When asked why the central bank found it urgent to hold an off-cycle meeting just to announce that it would keep rates unchanged, Remolona said: “I hope it reassures markets that we are assessing the situation constantly.”
“Normally, with inflation going where it’s going, we would have hiked. But because it was driven by supply shocks, we felt a hike wouldn’t do very much,” added the central bank governor.
Remolona said the off-cycle monetary policy meeting had to happen because “the data is so different now,” adding that the oil prices are “behaving somewhat differently.”
“This is a situation in which sentiment has become quite important. Fiscal policy as well,” added the central bank governor.
Remolona said the Monetary Board calls for an off-cycle meeting “whenever we feel that the data might have changed a lot.”
Prognosis
Looking ahead, Remolona said “it would only be appropriate for monetary policy to tighten” once there are second-round effects from supply shocks.
The BSP chief said the second-round effects that could trigger a rate hike are higher fates and food prices.
“You know, when oil prices go up, fertilizer prices also go up. That would tend to affect food prices. And those are two of the more important ones. Wages as well,” added Remolona.
“Looking ahead, mounting risks to inflation will require sustained vigilance. Monetary policy will focus on addressing likely second-round effects that may arise. The Monetary Board will act as needed in pursuit of the BSP’s primary mandate to maintain price stability,” the BSP said in a statement on Thursday.
At its February 19 policy meeting, the BSP Monetary Board reduced the Target Reverse Repurchase (RRP) Rate by 25 basis points to 4.25 percent.
The BSP slashed rates in February after it admitted that it has become less certain of the direction of the economy given the sliding confidence which dragged the pace of growth of the Philippine economy last year.
