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Philippines Monetary Policy December 2023

Philippines: Central Bank stands pat at December meeting

At its 14 December 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.

December’s hold was motivated by a stable inflation outlook and expectations of still-robust domestic activity. The BSP lowered its 2024 inflation forecast to 4.2% from 4.4% in November, inching closer to its 2.0–4.0% target range. In addition, the Bank deemed inflation expectations to have become largely anchored, with both 2024 and 2025 average forecasts coming in within target. Lastly, risks to inflation remained skewed to the upside due to increases in transport charges, electricity rates and oil prices. Consequently, the BSP opted for a hold “to allow inflation expectations to settle more firmly within the target range”.

The Bank was vague in its forward guidance, stating that it “remains ready to adjust monetary policy settings as necessary, in line with its mandate to ensure price stability.?” Our panelists anticipate the monetary policy loosening cycle to begin in H2 2024. The Bank is expected to convene next in February 2024.

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

“The Central Bank will likely extend its pause until inflation is “well-within” target and until inflation expectations are anchored. We expect the BSP to be on hold well into 2024, with potential rate cuts only likely to be considered towards the end of next year.”

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