BSP keeps interest rates steady at 6.25%

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Metro Manila (CNN Philippines, May 18) — The Bangko Sentral ng Pilipinas (BSP) kept interest rates unchanged on Thursday, a pause from a wave of increases since last year.

The Monetary Board announced the policy rate would remain at 6.25%.

Interest rates on overnight deposit and lending facilities were also kept at 5.75% and 6.75%, respectively.

BSP Governor Felipe Medalla already signaled last month that there might be a pause in the central bank’s tightening cycle amid “very good” inflation prints.

During a briefing, the central bank said its inflation forecasts have been revised downwards to 5.5% this year and 2.8% for 2024.

The BSP expects inflation rate to further cool down by the latter part of 2023.

Data from the Philippine Statistics Authority showed that the pace of price increase in April was slower with the inflation rate falling to 6.6% against the 7.6% a month prior.

Central banks around the world have been raising interest rates in efforts to tame soaring inflation.

With expensive borrowing costs, consumers and businesses would need to cough up more money to pay for their car or housing loans, and capital. In turn, the public would spend less, eventually leading to lower demand and prices.

Medalla said it would be “very hard” for the Monetary Board to immediately cut interest rates despite improvement in inflation data as doing so may result in a weaker peso, especially if the market sees US Fed officials raising rates.

The Monetary Board, he said, believes that it is necessary to keep the current level “over the near term.”

“It’s a pause for two to three policy meetings. That’s a more likely scenario,” the BSP chief said.

But the official stressed that the doors remain open to resume policy tightening if the BSP’s inflation forecast is revised upward, or if there is a new shock.

“The balance of risks to the inflation outlook remains largely tilted towards the upside owing to persistent constraints in the supply of key food items, the potential impact of El Niño on food prices and utility rates, as well as the effects of possible additional adjustments in transportation fares and wages,” he said.

Last week, Socioeconomic Planning Secretary Arsenio Balisacan said the agriculture sector might be greatly hit by the El Niño phenomenon as it is “vulnerable to droughts.”