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Philippines Monetary Policy November 2023

Philippines: Central Bank holds fire at November meeting

At its 16 November meeting, the Monetary Board of Bangko Sentral ng Pilipinas (BSP) kept the target reverse repurchase (RRP) rate unchanged at 6.50%. This followed last month’s surprise hike of 25 basis points at an unscheduled meeting on 26 October. 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.

November’s hold was motivated by an improving inflation outlook. The BSP lowered its 2024 inflation forecast to 4.4% (previously: 4.7%), inching down closer to the 2.0–4.0% target range. In addition, inflation expectations declined to the upper bound of the target in the Bank’s November survey. Lastly, price pressures moderated in recent months, partly due to government intervention and seasonal effects. Consequently, the BSP opted for a hold to allow the economy to adjust to previous rate hikes, including October’s surprise decision.

The Bank remained hawkish in its communique, stating that it “remains prepared to resume monetary policy tightening as necessary to steer inflation towards a target-consistent path”. Nevertheless, our panelists anticipate the monetary policy loosening cycle to begin in H2 2024. The Bank’s last meeting of the year is set for 14 December. Risks to the outlook include potential second-round effects stemming from higher transport prices and rising global fuel prices, minimum-wage adjustments, and a stronger-than-anticipated El Niño weather event disrupting food supply.

Nicholas Mapa, senior economist at ING, commented on the outlook:

“For now, it appears that the central bank is likely to keep policy rates untouched, possibly for the rest of the year while keeping its powder dry for potential tightening should inflation risks flare up again. Meanwhile, the lagged impact of previous policy rate hikes should continue to weigh on growth well into 2024. The [Philippine peso] will likely move sideways but benefit from the hawkish signals coming from the BSP.”

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