The Philippines kept its benchmark interest rate unchanged as price and currency pressures waned, although authorities signaled they’re not in a hurry to loosen policy settings.
(Bloomberg) — The Philippines kept its benchmark interest rate unchanged as price and currency pressures waned, although authorities signaled they’re not in a hurry to loosen policy settings.
The Bangko Sentral ng Pilipinas maintained its overnight reverse repurchase rate at 6.25% on Thursday, as seen by all 25 economists in a Bloomberg survey. Authorities stood pat for a second straight meeting after a combined 425 basis points of hikes during a one-year tightening cycle that took borrowing costs to the highest in 16 years.
“I would like to see two months of below 4% inflation before considering cutting,” Governor Felipe Medalla said at the briefing in Manila, adding that he’s expressing his “risk preference.” He also said that rate cuts in very near future are unlikely. Finance Secretary Benjamin Diokno last week made similar remarks.
Medalla, 73, took the helm as governor a year ago to continue the term of Diokno due to end on July 3. There’s no word yet from President Ferdinand Marcos Jr. whether Medalla will stay on.
Medalla, a longtime economics professor took on the central bank’s most-aggressive monetary tightening cycle in two decades to rein in inflation that bolted to the fastest since 2008 and stabilize a currency that slumped to a record low.
The overall price gauge has cooled for four months in a row in May although still above the 2%-4% target, while the currency is among the better performers against the dollar this month. The BSP on Thursday cut its 2023 inflation forecast and said it expects price gains to be within target in the next two years.
“BSP keeps rates untouched as expected given the outlook for inflation. This could be Gov Medalla’s last meeting and our outlook for policy rates will be informed by the choice for next governor,” said Nicholas Mapa, Manila-based senior economist at ING Groep NV.
The central bank flagged lingering upside risks to inflation and the need to remain vigilant, adding that its “prepared to resume monetary tightening as necessary, in line with its data-dependent approach.”
What Bloomberg Economics Says…
“BSP delivered another hawkish hold, again indicating it remains ready to resume tightening if necessary. But further rate hikes are unlikely, in our view.”
—Tamara Mast Henderson, Asean economist
For the full note, click here
The pause also came amid warnings from economic managers that further monetary tightening may dampen economic growth, which already moderated last quarter. The economic team is targeting growth of at least 6% this year amid global risks.
–With assistance from Tomoko Sato, Cecilia Yap, Karl Lester M. Yap, Chester Yung and Claire Jiao.
(Updates with comments, additional details throughout.)
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