FOR the third straight policy meeting, the Monetary Board has decided to retain its key interest rate at 6.25 percent as inflation slowed for the sixth straight month in July.
The interest rates on the overnight deposit and lending facilities were thus retained at 5.75 percent and 6.75 percent, respectively, announced Bangko Sentral ng Pilipinas Gov. Eli Remolona Jr. on Thursday, Aug. 17, 2023.
Inflation slowed in July to 4.7 percent from 5.4 percent in June 2023. This is the sixth consecutive month of deceleration in the headline inflation and the lowest since March 2022, when the inflation rate was four percent.
According to Remolona, the latest baseline projections continue to show a return to inflation target in the fourth quarter of 2023 despite a generally higher path for inflation relative to the previous forecast from the monetary policy meeting in June, reflecting mainly the impact of higher international oil prices.
He said average inflation for 2023 is seen to reach 5.6 percent, while the average inflation forecasts for 2024 and 2025 now stand at 3.3 percent and 3.4 percent, respectively.
Inflation expectations for 2023 have remained steady, while those for 2024 and 2025 have declined slightly, Remolona said.
For the upside risks to inflation, the BSP chief cited potential price pressures linked to the impact of possible higher transport charges, higher minimum wage adjustments, persistent supply constraints on key food items and the effects of El Niño weather conditions on food prices and power rates.
For the downside risks to the inflation outlook, he cited a weaker-than-expected global economic recovery as the primary risk.
The Monetary Board also recognized the weaker gross domestic product outturn for the second quarter of 2023 that reflected a broad-based slowdown in domestic demand. Household consumption, Remolona said, slowed due to elevated commodity prices, while government spending contracted relative to the previous year.
“Given these considerations, the Monetary Board deemed it appropriate to maintain monetary policy settings to allow a moderation of inflation even as authorities continue to assess the emerging risks to the inflation outlook,” said Remolona.
Finance Secretary and Monetary Board member Benjamin Diokno, on Friday, Aug. 11, expressed his belief that the cycle of increasing interest rates to temper high inflation is now coming to an end.
“I think the move to increase the interest rates is slowing down a bit because they saw that if the interest rates are too high, the economy will slow down and there will be a recession. I think the cycle of raising interest rates is over. Inflation rates in our forecast are expected to go down soon by two to four percent. For 2024, average inflation could return to within-target range at 3.1 percent,” said Diokno during the post-Sona Philippine Media Briefing-Cebu leg in Marco Polo Plaza Cebu.
The Monetary Board took a break in hiking interest rates in May when April inflation started to ease at 6.6 percent.
The pause in hikes came after nine successive hikes in the BSP’s key interest rate since May 2022, aimed at reining in inflation following Russia’s invasion of Ukraine in February 2022 that has disrupted global supply chains.