Philippine economy

Bangko Sentral pauses rate hikes as inflation cools

Lance Spencer Yu

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Bangko Sentral pauses rate hikes as inflation cools
Bangko Sentral ng Pilipinas Governor Felipe Medalla also says the central bank is unlikely to cut or hike interest rates in the next two to three Monetary Board meetings

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) decided to keep its current key policy rates, noting that inflation has begun to ease.

In a rate-setting meeting on Thursday, May 17, the BSP’s Monetary Board made no change to the key policy rate of 6.25%. It earlier enforced a hike of 25 basis points (bps) last March.

“Given these considerations, the Monetary Board deems it prudent for the BSP to take a pause in monetary policy tightening while remaining ready to respond to emerging threats to inflation. The Monetary Board also deems it necessary to keep the policy interest rate at its current level over the near term,” BSP Governor Felipe Medalla said in a press briefing on Thursday.

The central bank governor also said cuts and hikes are unlikely in the next two to three Monetary Board meetings, which are set for August and September. But the BSP would still be open to adjusting key policy rates depending on its inflation forecasts and also the monetary policy decisions of the United States Federal Reserve.

“It will depend on what happens to inflation and – like it or not – what happens to US policy rates. The more likely scenario is the US is not going to cut, or might even increase,” he said. “Clearly, it’s very hard for us to cut even if our view is we’re very likely to achieve our inflation target.”

“If the US raises and we continue to cut, the market seems to see that as a trigger for a significantly weaker peso,” Medalla added.

The BSP began its monetary policy tightening exactly a year ago, following the lead of central banks around the world. It raised its key policy rate by 25 bps to 2.25%, marking the first time it hiked interest rates since 2018.

In every Monetary Board meeting since then, except Thursday’s, the BSP has raised its policy rates. The central bank explained that the hikes were necessary to bring inflation back down to the 2% to 4% target range for the medium term.

The pause announced on Thursday comes after inflation decelerated in April for the third straight month. It stood at 6.6%, much lower than the 14-year high rate of 8.7% recorded in January.

The central bank has also revised its inflation forecasts for this year and the next. Average inflation for 2023 was lowered to 5.5% from an earlier estimate of 6.1%, while the inflation forecast for 2024 was changed to 2.8%, lower than the 3.1% estimate made in February.

Medalla hinted earlier this week that the central bank may pause its rate hikes in light of the downward trend of inflation rates.

“If for sure this is a permanent trend, clearly, we must pause,” Medalla said in a chance interview on Monday, May 15.

National Economic and Development Authority Secretary Arsenio Balisacan also believes that inflation has finally peaked, saying that the latest numbers are “promising.”

“Headline inflation rate appears to have reached its highest point, decelerating to 6.6% in April 2023 from 7.6% in March and 8.6% in February. We anticipate this downward trend to continue as inflation eventually eases to the government’s target range by the fourth quarter of 2023,” he said in a press conference on the country’s latest gross domestic product (GDP) figures on May 11.

The Philippines posted a GDP growth of 6.4% in the first quarter of 2023, exceeding expectations in an environment of high inflation and sustained interest rate hikes.

How interest rate hikes impact your money and the economy

How interest rate hikes impact your money and the economy


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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.