The central bank’s Monetary Board kept the policy rate unchanged at 6.25 percent on Thursday, June 22, as it continues to expect the gradual return of inflation to within the target range by October or November this year. Bangko Sentral ng Pilipinas (BSP) Governor and Monetary Board Chair Felipe M. Medalla reiterated his May 18 assessment that a “hold” policy stance is possible for two to three meetings. Since the BSP has paused for the second time in a row, the BSP Chief said they could keep the current key rate until the next policy meeting which will be on Aug. 17. “I don’t think two good data points are enough. So, clearly a pause will be, in my view, at least three meetings. Now we have two already,” Medalla told reporters after the policy meeting. “But suppose inflation numbers are very good, and we’re very confident it will be below four (percent) by October, but the Fed (US Federal Reserve) with a US inflation that’s more problematic, they raise their policy rate. Should we do something because the US did it? (The) textbook answer is we shouldn’t,” he said. Meanwhile, both Medalla and BSP Deputy Governor Francisco G. Dakila Jr. said the inflation forecasts for 2023 was adjusted lower to 5.4 percent versus an earlier estimate (May 18) of 5.5 percent. For next year, the BSP raised the consumer price index (CPI) projection to 2.9 percent from 2.8 percent previously. The BSP also announced the 2025 CPI forecast for the first time which was at 3.2 percent, the midpoint of the two percent to four percent target. Dakila said they adjusted the 2023 average CPI forecast due to the lower-than-expected May inflation of 6.1 percent from April’s 6.6 percent, and the lower projection for the June inflation which they cannot announce yet. For the 2024 outlook, it was revised up to 2.9 percent because of the impact of a more active economy post-pandemic, and the hawkish US Fed. As for the 2025 CPI forecast of 3.2 percent, Dakila said this was based on their assessment of their oil price assumptions, futures prices for non-oil products, and the outlook for the global economic growth. Medalla said in May, both headline and core inflation declined which affirmed their expectations of a below four percent CPI by the fourth quarter this year. “However, the balance of risks to the inflation outlook continues to lean towards the upside due to the potential impact of additional transport fare increases and minimum wage adjustments, persistent supply constraints of key food items, El Niño weather conditions, and possible knock-on effects of higher toll rates on agricultural prices,” said Medalla. Downside risks are still the impact of a weaker-than-expected global economic recovery. Medalla said domestic growth momentum is expected to remain intact over the near term, and that the “recent demand indicators suggest a likely moderation in economic activity over the policy horizon, reflecting the impact of the BSP’s cumulative policy rate adjustments as well as weak global growth prospects.” “Given these considerations, the Monetary Board deems it appropriate to maintain current monetary policy settings to allow the BSP to further assess how inflation and domestic demand have responded to tighter monetary conditions. However, lingering upside risks to the inflation outlook also warrant continued vigilance against potential second-round effects,” he added. During its Thursday meeting, the BSP also decided to keep the interest rate on the overnight deposit and lending facilities unchanged at 5.75 percent and 6.75 percent, respectively. The BSP said a pause in the monetary tightening cycle will give them time to review markets’ conditions after the aggressive rate hikes, especially asset prices. “While there remains limited evidence of asset price bubbles or stretched market valuations domestically, a record-high interest rate environment necessitates close monitoring to prevent the build-up of financial imbalances, especially,” said the BSP in a report. The BSP however underscores its readiness to resume interest rate action “as necessitated by the potential upside risks in the near term, in keeping with the BSP’s primary mandate to ensure price stability.” The reason for this is because there is more upside risks to inflation than downside risks.