MONETARY authorities kept key interest rates unchanged as expected on Thursday amid an improvement in inflation conditions.
The Bangko Sentral ng Pilipinas' (BSP) benchmark rate remains at a 16-year high of 6.5 percent while its overnight deposit and lending rates stay at 6.0 and 7.0 percent, respectively.
Thursday's pause — the third in a row after an off-cycle hike in late October — followed two straight months of lower and within-target inflation.
The BSP, however, said consumer price growth could again move higher even as it lowered its risk-adjusted 2024 inflation forecast to 3.9 percent from 4.2 percent.
That for 2025 was raised to 3.5 percent from 3.4 percent.
The baseline forecast for this year was also trimmed, to 3.6 percent from 3.7 percent, while the 2025 projection was kept at 3.2 percent.
Consumer price growth slowed to 2.8 percent in January, well within the BSP's 2.0- to 4.0-percent target, but is expected to pick up in the second quarter due to the impact of El Niño on food prices.
"The BSP's latest survey of external forecasters shows inflation expectations to be more firmly anchored, with mean forecasts remaining within the target range for both 2024 and 2025," BSP Senior Assistant Governor Iluminada Sicat said in a briefing.
While risks to the outlook have receded, she said that these remained tilted toward the upside.
"The upside risks to the inflation forecasts are linked mainly to higher transport charges, increased electricity rates, higher oil and domestic food prices, and the additional impact on food prices of a strong El Niño episode," Sicat said.
"On the other hand, the implementation of government measures to mitigate the impact of El Niño weather conditions is the primary downside risk to the outlook."
Given January's surge in rice inflation to a 14-year high of 22.6 percent, Sicat said that a recent supply deal with Vietnam would help temper prices.
Better-than-expected growth last year despite 450 basis points of rate hikes since May 2022, meanwhile, was said to support the view that the economy remained strong.
With the policy adjustments still to make their way through the economy, Sicat said "the impact could be a bit longer."
The BSP said that given the prevailing risks, the Monetary Board found it "appropriate to keep the BSP's monetary policy settings unchanged in the near term amid the improvement in inflation conditions."
Monetary authorities remain hawkish, Sicat said, but "in terms of tone it is not as strong as what we had last December...".
Firmer indications that inflation would remain within target will provide "scope for a rate cut ... but at this moment, given the substantial risk on the upside, we consider the policy rate at the moment appropriate to maintain."
The central bank also said that it continued to "support the national government's nonmonetary measures to address supply-side pressures on prices and sustain the disinflation process."
"The BSP remains ready to adjust its monetary policy settings as necessary in keeping with its primary mandate to safeguard price stability," it added.
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