Metro Manila (CNN Philippines, August 17) — The country’s central bank remains cautious in slashing interest rates, with monetary authorities deciding to hold their benchmark rate steady.
The policy rate would stay at 6.25%, the Bangko Sentral ng Pilipinas (BSP) said in a briefing Thursday.Interest rates on overnight deposit and lending facilities were also retained at 5.75% and 6.75%, respectively.Central banks globally have been hiking interest rates amid soaring commodity prices.Imposing higher borrowing costs would mean consumers and businesses have to cough up more to settle their car or housing loan amortizations, or capital.This move would force the public to spend less, subsequently pulling down demand in the market.During the briefing, BSP Governor Eli Remolona said they still expect the country’s inflation rate to return within the target in the last three months of 2023.However, the central bank’s average inflation rate forecast for 2023 remains outside the government’s target range of 2%-4%, as it is seen to hit 5.6%. Inflation forecasts for the next two years, on the other hand, “have declined slightly” at 3.3% for 2024 and 3.4% for 2025.“Nonetheless, the balance of risks to the inflation forecast continues to lean towards the upside,” Remolona said during the briefing.
He noted that potential price pressures may come from higher transport charges and minimum wage adjustments, supply constraints on some food items, and the impact of El Niño on food prices and power rates.
The BSP official likewise mentioned the “challenging outlook” for local economic growth after authorities reported that the Philippines expanded by 4.3%, much weaker than the 6.4% a quarter prior and the 7.5% growth recorded in the same period last year.
READ: Nagging inflation, rate hikes drag PH growth in Q2
“Household consumption 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,” he said.
Former BSP Governor Felipe Medalla previously said immediately lowering borrowing costs would be the “most serious error” if the situation does not call for it.For him, the country must record a below 4% inflation rate for at least two months before considering slashing rates.Philippine Statistics Authority data showed the pace of price increases in July was slower at 4.7% from 5.4% in June.Asked if monetary authorities remained prepared to resume their tightening amid upward risks, Remolona said: “Yes, it’s still the case.”
