Monetary policy stays till inflation at 2-4%


THE Bangko Sentral ng Pilipinas (BSP) has no plans to make any change in its monetary policy stance until the country’s inflation rate reaches the 2 to 4 percent target range which is expected next year.

In the Philippine Economic Briefing in Dubai, United Arab Emirates, BSP Deputy Governor Francisco G. Dakila Jr. said, however, that inflation is expected to continue its downtrend despite the higher-than-expected inflation print in August at 5.3 percent.

Dakila said inflation will be below the midpoint of the BSP’s target range in the first quarter of next year. It is expected to average 3.3 percent in 2024 and 3.4 percent in 2025.

“So the Monetary Board has kept the policy interest rate unchanged

for several meetings now and the Governor [BSP Governor Eli M. Remolona Jr.] has given forward guidance that we would like to see inflation go back at least to within target before any change in the monetary policy stance is contemplated,” Dakila said in the briefing.

Dakila said the results of the BSP’s Survey of External Forecasters showed that the mean inflation forecast for 2023 is at 5.5 percent while the 2024 expectation is pegged at 3.5 percent and 2025, 3.4 percent.

Meanwhile, Dakila said the Monetary Board will take into consideration the decisions of the Federal Reserve, but to a lesser degree compared to domestic inflation.

Dakila said the Monetary Board has “front loaded” its response to the tight monetary policy of the US Federal Reserve by raising its policy rates by 425 basis points to 6.25 percent since May 2022.

He added that the situation today is very different compared to the second half of 2022 when the BSP was aggressively raising rates and was in lock step with the US Federal Reserve’s decisions to raise its rates.

“Right now even though the August outturn showed the type of weather disturbances, we continue to see inflation being on a target consistent path. So the focus now of the board will be primarily on domestic considerations,” Dakila said.

“External factors will of course need to be taken into account but the impact of those factors will be less compared to how we were last year,” he added.

Earlier, the BSP decided to pause its aggressive monetary policy tightening campaign as it believes that inflation is now “firmly on track” to hit the government’s target.

This meant that the Monetary Board kept the prevailing interest rates on BSP’s overnight reverse repurchase facility at 6.25 percent.

The interest rates on the overnight deposit and lending facilities were also maintained at 5.75 percent and 6.75 percent, respectively.

The BSP also said maintaining interest rates is expected in the near-term and that monetary authorities are “unlikely to raise [and will also be] reluctant to cut” interest rates—at least in the next 2 to 3 policy rate settings.

Given this, the BSP expressed its willingness to cut the reserve requirement (RR) ratio by 200 basis points next month. The “ideal time” to do this, Medalla said, is on June 30 when BSP’s pandemic policies are set to expire.

During the pandemic, the BSP allowed banks to use loans to MSMEs not affiliated with conglomerates as alternative compliance with the reserve requirements against deposit liabilities and deposit substitutes. This arrangement expires next month.

Image credits: Arden Paolo Alberto |