BSP pauses on rate hiking cycle, cites inflation rate deceleration

After hiking key rates for nine consecutive rate setting meetings since May 2022, Philippine monetary authorities on Thursday maintained the Bangko Sentral ng Pilpinas’ (BSP) policy rates due mainly to deceleration of inflation rate.

Thus, the overnight reverse repurchase (RRP) rate is still at 6.25 percent, the overnight repurchase (RP) rate is at 6.75 percent and the overnight deposit rate is at 5.75 percent.

“Based on the sum of new information and its assessment of the impact of previous monetary policy actions, the Monetary Board decided that a pause in monetary policy tightening was appropriate,” BSP Governor Felipe Medalla said in a briefing on Thursday, Thursday’s pause in the policy-making MB’s rate tightening moves is a change after the hikes in the key rates from its record-low 2 percent, with the upward adjustment aimed at helping address the jumps in inflation rate.

Relatively, the MB slashed the central bank’s average inflation forecast for this year from 6 percent to 5.5 percent and the 2024 projection from 3.1 percent to 2.8 percent.

Medalla said these chang- es “continue to reflect a gradual return of inflation to the target band of 2-4 percent over the policy horizon.”

He said inflation expectations for 2024 to 2025 “are steady and within the target range.”

He, on the other hand, noted that while domestic expansion remains robust in the first three months of this year “demand indicators have also pointed to a potential moderation in the recent months, suggesting that previous policy rate increases by the BSP continue to work their way through the economy.”

He said the Board is also “encouraged by the recent mounting of whole-of-government actions to ease constraints on food supply.”

He, however, pointed out that “even as headline inflation has continued to decelerate with slower increases in the prices of food and energy-related items, core inflation has only eased marginally.”

Domestic inflation rate hit its 14-year high if 8.7 percent last January but has slowed since then, with the April figure already at 6.6 percent, from month-ago’s 7.6 percent.

Core inflation, which excludes volatile oil and food items, is al-