As expected, the Bangko Sentral ng Pilipinas’ (BSP) Monetary Board kept the target reverse repurchase (RRP) rate at 6.5 percent during Monday’s policy meeting as price pressures remained on the upside due to higher transport fares, food prices and electricity rates.

BSP Governor Eli M. Remolona Jr. said in a press briefing on April 8 that they could cut the RRP rate or the policy rate by the third quarter this year depending on how inflation would turn out, or the state of the economy in terms of gross domestic product growth.

“If we see some good news in inflation and somewhat weak growth, we could ease by the third quarter. And if it’s the opposite, we would ease by the first quarter of 2025,” he said.

Remolona noted that external risks “have become worse”  and “that would make us somewhat more hawkish than before.”

“I would say if we were relatively dovish, we might reduce rates in the third quarter and that would be no more than 25 basis points. But now we’re more hawkish. So, we are not going to do it by the third quarter. We’re contemplating easing, we’re not contemplating any further tightening,” he said.

The BSP chief also said that “for us to not consider easing, the growth will have to be really, really strong, and inflation will be really, really high.”

Remolona said that they now expect a higher risk-adjusted inflation forecast for 2024 of four percent versus the previous estimate of 3.9 percent, but maintained the 3.5 percent projection for 2025. These are all within the BSP target inflation band of two percent to four percent.

“The risks to the inflation outlook continue to lean toward the upside. Possible further price pressures are linked mainly to higher transport charges, elevated food prices, higher electricity rates, and global oil prices. Potential minimum wage adjustments could also give rise to second-round effects,” he said.

Meanwhile, BSP Deputy Governor Francisco G. Dakila Jr. said the factors that led to the revision of the 2024 risk-adjusted inflation forecast are the uptick in crude oil prices, higher inflation outturns in February and March relative to forecasts, as well as the possibility of higher transport fares, domestic food prices and adjustments to electricity rates. The consumer price index increased to 3.7 percent in March from 3.4 percent in February and 2.8 percent in January.

Despite persistent upside risks to inflation which have also raised expectations, the BSP said these expectations have remained “broadly anchored”.

The Monetary Board has also decided to retain interest rates on the overnight deposit at six percent and lending facilities at seven percent.

Remolona said the latest demand indicators suggest that domestic growth “remain largely intact over the medium term, even as overall activity continues to gradually respond to tighter financial conditions.”

“Given these considerations, the Monetary Board deems it appropriate to maintain the BSP’s tight monetary policy settings. The BSP also continues to support the National Government’s policies and programs to address supply-side pressures on the prices of key food commodities,” he said.

He also reiterated that the “BSP remains ready to adjust its monetary policy settings as necessary, in keeping with its primary mandate to safeguard price stability.”