Bangko Sentral ng Pilipinas

Bangko Sentral holds interest rates high as inflation risks ‘become worse’

Lance Spencer Yu

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Bangko Sentral holds interest rates high as inflation risks ‘become worse’
Although the Philippine central bank's inflation forecast has inched up, it is not contemplating rate cuts or hikes anytime soon

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) kept its key policy rate at 6.5%, marking the fourth time that rates have remained unchanged since an off-cycle hike in October 2023.

The BSP’s Monetary Board decision to keep its benchmark interest rate at the 16-year high comes as inflation in March also accelerated.

The central bank raises and lowers this rate as its way of controlling inflation. Theoretically, increasing interest rates or maintaining them at an elevated level can discourage people from borrowing and spending, slowing down economic growth and the rise of prices.

BSP Governor Eli Remolona Jr. also said the projected inflation path has “shifted slightly higher but remains within target.” Risk-adjusted inflation for 2024 has inched up to 4% from the 3.9% forecast in the BSP’s February meeting, affected by higher global oil prices and the higher-than-expected inflation in February and March.

At the same time, the central bank is keeping an eye on the price of rice, especially as rice inflation is nearing an all-time high and may go even higher until the middle of 2024. (READ: High rice inflation could linger until July as market prices keep going up)

“If I were to name one single commodity, it would be rice. Rice prices, they’re not only very significant this time, they also are what we call ‘salient prices.’ They get noticed, and they tend to affect expectations more than other commodities,” Remolona said.

Average inflation for the year is still expected to remain within the government’s 2% to 4% target range.

What Bangko Sentral’s interest rate hike means for consumers and the economy

What Bangko Sentral’s interest rate hike means for consumers and the economy
When will rate cuts happen?

However, given the uptick in inflation, Remolona said the central bank is retaining a more hawkish stance and may delay rate cuts further.

“My sense is that the upside risks mainly have become worse, so that would make us somewhat more hawkish than before. If we were relatively dovish, we might reduce rates in the third quarter, and that would be by no more than 25 basis points, but now we’re feeling a bit more hawkish than before,” Remolona said on Monday, April 8.

A rate cut may come further “down the road,” the BSP governor said. That could mean as soon as the third quarter if they see “some good news with inflation and somewhat weak growth.”

“If it’s the opposite, we would ease by the first quarter of 2025. So parang middle of the range ‘yung fourth quarter (so fourth quarter would be middle of the range),” Remolona said.

He also added that the central bank is contemplating easing, not further tightening, given that the current tight key policy rate “is sufficient to bring inflation rates down.” –

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Lance Spencer Yu

Lance Spencer Yu is a multimedia reporter who covers the transportation, tourism, infrastructure, finance, agriculture, and corporate sectors, as well as macroeconomic issues.