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Philippines Monetary Policy May 2024

Philippines: BSP leaves rates unchanged in May, hints at start of easing cycle

As expected, at its meeting on 16 May, the Monetary Board of Bangko Sentral Pilipinas (BSP) decided to maintain the Target Reverse Repurchase (RRP) Rate at 6.50%, with the interest rates on the overnight deposit and lending facilities remaining at 6.00% and 7.00%, respectively.

The decision to hold interest rates was primarily driven by inflation risks remaining skewed to the upside, relating to transport charges, food prices, electricity rates and global oil prices. Moreover, the BSP’s latest risk-adjusted forecasts suggest inflation will be close to the upper end of its official target range of 2.0–4.0% in 2024 and 2025, though they were revised slightly downward since the Bank last met.

The Monetary Board indicated that it remained ready to adjust its monetary policy settings as necessary to ensure price stability and anchor inflation firmly within target. That said, in a subsequent statement, Governor Remolona stated that the BSP could begin cutting rates as early as August. Our panelists foresee about 50 basis points of rate cuts by end-2024. The timing and pace of the U.S. Fed’s monetary policy loosening cycle remains a factor to watch.

The BSP will convene next on 27 June.

EIU analysts commented on the outlook:

“We believe that the BSP will cut the policy rate by 25 basis points at its meeting on October 17th as the Fed eases and lower inflation enables the Philippine central bank to focus on supporting economic growth. However, considering still-present risks to food prices from weather conditions, as well as the upward pressure on consumer prices from a weak peso and high global oil prices, there is still a risk that sticky inflation will force the BSP to keep interest rates higher for longer.”

ING analyst Nicholas Mapa said:

“Should headline and core inflation continue to slide and barring any potential supply side shocks, we believe that the BSP can adjust policy rates ASAF (As Soon as the Fed does). Given our expectation that the Federal Reserve could cut policy rates at their May or June meeting, we expect that BSP could consider cutting its policy rate as early as the 27 June policy meeting.”

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