The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) on Monday kept the overnight borrowing rate steady at 6.5 percent for the fourth consecutive policy meeting since October 2023.
It said in a statement it also maintained the interest rates on overnight deposit and lending facilities at 6.0 percent and 7.0 percent, respectively.
The BSP said the latest inflation path had shifted slightly higher but remained within target.
“The risk-adjusted inflation forecast for 2024 has risen to 4 percent from 3.9 percent in the previous meeting,” the BSP said.
Inflation rate averaged 3.3 percent in the first quarter within the government’s target range of 2 percent to 4 percent for the year.
“The risks to the inflation outlook continue to lean toward the upside. Possible further price pressures are linked mainly to higher transport charges, elevated food prices, higher electricity rates, and global oil prices. Potential minimum wage adjustments could also give rise to second-round effects,” the BSP said.
London-based Oxford Economics said it expects the BSP to start cutting its interest rate later than earlier anticipated.
“Given upside domestic inflation risks as well as chances that the US Fed might delay its easing cycle, the risk for BSP is tilted to a later start of the rate cuts,” it said.
Oxford Economics said the BSP would also likely remain cautious of the peso’s movement amid broad US dollar strength. The peso’s performance is generally on par with the regional average so far this year, but the Philippines’ twin deficit status makes the currency vulnerable to sudden movements in the face of risk-off sentiment, it said.
“As such, we think BSP is unlikely to move before the Fed, as a narrower interest rate differential will weigh on the peso. Our US team recently pushed back the timing of the first rate cut by the Fed to June from May, and the risks are tilted towards an even later start of the easing cycle,” it said.
Rizal Commercial Banking Corp. (RCBC) chief economist Michael Ricafort said the latest pause in local policy rates came after Fed kept its key interest rates unchanged for the fifth straight meeting at the 22-year high of 5.25 percent to 5.50 percent range on March 20, 2024.
“Thus, further local policy rate pause or cut [especially in 2024] could already be possible for the coming months, as fundamentally supported by the easing inflation trend as seen recently amid higher base/denominator effects; also as a function of future Fed rate pause or cut/s (especially later in 2024); also as a function of the behavior of the peso exchange rate, going forward,” Ricafort said.