Central Bank maintains policy settings at February meeting

At its 15 February meeting, the Monetary Board of Bangko Sentral ng Pilipinas (BSP) kept the target reverse repurchase (RRP) rate unchanged at 6.50%. Concurrently, the rates on the overnight deposit and lending facilities—which establish the floor and ceiling of the interest rate corridor—remained at 6.00% and 7.00%, respectively.

The BSP stood pat in February as the inflation outlook was broadly unchanged; authorities moderately lowered their 2024 projections for risk-adjusted inflation to 3.9% from 4.2% in December and marginally raised their 2025 forecast by 0.1 percentage points to 3.5%. Meanwhile, inflation expectations were deemed more firmly anchored than before, remaining within target in both 2024 and 2025. With regard to the broader economy, the BSP noted that economic activity could moderate in the near term due to the delayed impact of monetary policy tightening.

The Bank reiterated that it “remains ready to adjust its monetary policy settings as necessary in keeping with its primary mandate to safeguard price stability.?” Our panelists see the imminent start of the BSP’s loosening cycle closely linked to the U.S. Fed’s policy stance. As such, the majority of our analysts anticipate the monetary policy loosening cycle beginning in H2 2024. The Bank is expected to convene next on 4 April.

Nicholas Mapa, senior economist at ING, commented on the outlook: “The BSP will likely retain its hawkish stance in the near term, possibly keeping policy rates untouched for as long as the Fed has yet to carry out their own rate cut. However, with the risk-adjusted inflation forecast already within target, we believe the BSP now has scope to discuss potential easing possibly as early as mid-year.” United Overseas Bank analysts Julia Goh and Loke Siew Ting said: “Backed by the clues on rate pause in the latest MPS and press conference as well as US Fed’s cautious approach to rate cuts, we reiterate our call for BSP to start loosening its monetary policy at a measured pace in June (by -25bps). This rate cut cycle will then be carried out slowly and carefully, due to lingering inflation risks and geoeconomic challenges.”

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