THE Monetary Board of the Bangko Sentral ng Pilipinas (BSP) announced on Monday, April 8, 2024, that it has maintained the key interest rate at 6.50 percent, despite a slight uptick in inflation in March attributed to higher food costs.
Interest rates on the overnight deposit and lending facilities also remain at six percent and seven percent, respectively.
According to Monetary Board Chairman and BSP Gov. Eli Remolona Jr., the latest inflation path has shifted slightly higher but remains within target.
“The risk-adjusted inflation forecast for 2024 has risen to four percent from 3.9 percent in the previous meeting. For 2025, the risk-adjusted inflation forecast is unchanged at 3.5 percent,” the BSP chief said.
Inflation rate in March rose to 3.7 percent from 3.4 percent in February, but remains well within the government’s targeted range of two to four percent for the entire year.
The slight uptick is mainly due to a faster food inflation rate of 5.7 percent, up from 4.8 percent in February 2024, largely influenced by the rice inflation, which accelerated to 24.4 percent from 23.7 percent.
Remolona said risks to the inflation outlook continue to lean toward the upside.
He added that 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 Monetary Board noted that while upside risks to inflation have raised inflation expectations, these expectations have remained broadly anchored,” said Remolona.
Meanwhile, the BSP chief added the latest demand indicators suggest that domestic growth prospects remain largely intact over the medium term, even as overall activity continues to gradually respond to tighter financial conditions.
“Given these considerations, the Monetary Board deems it appropriate to maintain the BSP’s tight monetary policy settings,” he said.
Rate cuts
Earlier, BPI’s senior economist Emilio Neri Jr. said the BSP may keep its rates steady in the first half of the year, taking into account a possible inflation rebound in the second quarter.
“Rate cuts are possible in the second half of the year once inflation is firmly within the target of the central bank. However, the timing of future rate cuts and their magnitude also depend on what the Federal Reserve (Fed) will do. If local inflation conditions are right, the BSP will likely respond immediately with rate cuts once the Fed begins its easing cycle,” said Neri.
The Monetary Board has not adjusted the benchmark interest rates since its off-cycle hike of 25 basis points on Oct. 26, 2023. / KOC