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Philippines Monetary Policy September 2023

Philippines: Central Bank stays put in September

At its 21 September meeting, the Bangko Sentral ng Pilipinas (BSP) left the target reverse repurchase (RRP) rate unchanged at 6.25% for the fourth consecutive meeting, in line with market expectations. Concurrently, the rates on the overnight deposit and lending facilities—which establish the floor and ceiling of the interest rate corridor—remained at 5.75% and 6.75%, respectively.

The BSP left rates unchanged to avoid hurting already-struggling economic activity despite increasing inflationary risks. The BSP acknowledged that both core inflation and domestic demand have shown signs of moderation; coupled with the recent disappointing Q2 GDP result, this suggests that previous policy tightening has started to stifle economic activity, prompting the Bank to avoid further hikes. Turning to inflation, the Bank raised its 2023 and 2024 average inflation projections by 0.2 percentage points to 5.8% and 3.5%, respectively. The change reflected spillovers from weather disturbances—amid the El Niño weather phenomenon—rising global crude prices and the recent depreciation of the Philippine peso. Despite the upward revisions, expectations remain anchored within the 2.0–4.0% target band over the forecast horizon, and inflation is expected to fall back within the range in Q4, giving the Bank room to stand pat.

The Bank struck a hawkish tone in its communique, stating that it was “ready to resume its tightening actions in the face of upside risks and potential second-round effects that could dislodge inflation expectations”. It also added that non-monetary policies, such as temporary reductions of import tariffs, were needed to ensure price stability. Our panel currently sees the key rate ending the year around current levels. That said, stronger-than-expected inflation in the coming months poses an upside risk to the policy level.

The next policy meeting is set for 16 November.

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