Philippines: Central Bank extends monetary policy tightening pause in June
At its 22 June meeting, the Bangko Sentral ng Pilipinas (BSP) left the overnight reverse repurchase facility rate unchanged at 6.25% once again, following May’s hold. Concurrently, the rates on the overnight deposit and lending facilities—which establish the floor and the ceiling of the interest rate corridor—remained at 5.75% and 6.75%, respectively.
June’s extended pause came on the back of moderating consumer and core inflation rates, consolidating expectations that price pressures are on a stable downward trajectory. The Bank opted for a hold also because inflationary risks remained skewed to the upside due to the potential impact of further second-round effects on wages and transport costs, stubborn bottlenecks in food supply chains and the emergence of the El Niño weather pattern. In addition, domestic demand conditions are now forecast to begin softening ahead due to previous tightening from the Central Bank and a downbeat external environment.
In its communiqué, the Bank affirmed its stance on the policy pause in order to assess the impact of previous decisions on inflation and the economy. That said, it indicated that potentially stronger second-round effects pose a risk to the policy trajectory. In an interview with Bloomberg, Governor Felipe Medalla said that a wait-and-see approach until January or February is currently the most prudent policy action. Although Medalla’s term as Central Bank governor ends on 3 July, broad policy continuity under the new chief Eli Remolona is anticipated.
The majority of our panelists expect the overnight reverse repurchase facility rate to end the year unchanged. The next monetary policy meeting is scheduled for 17 August.
Nomura economists Euben Paracuelles and Rangga Cipta commented on the outlook:
“We think hiking is unlikely to resume as headline inflation remains on a downtrend and, barring any new shocks, headline inflation should reach BSP’s 2-4% target by September based on our forecasts […]. Beyond this, today’s comments from the governor, especially his preference for seeing headline inflation becoming more entrenched within BSP’s target, continue to support our view of a prolonged pause before the start of the rate cutting cycle.”