Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona Jr. clearly signaled on Thursday, Sept. 21, that the Monetary Board will likely raise the policy rate in mid-November but for now, it has decided to keep the target reverse repurchase (RRP) rate unchanged at 6.25 percent.

“A rate hike is on the table for November. How big it will be will depend on the data, or how bad the data with respect to inflation,” said Remolona in a press briefing after the Monetary Board policy meeting.

The BSP chief also said that there will be no policy rate cut for the first two quarters in 2024 after they raise the target RRP rate on Nov. 16.

Remolona said he sees BSP likely pausing and holding current rates in the first six months of 2024 but the “second half of the year is a long time from now (and) it’s hard to guess.”

“I expect rates to be at the level thereat, the end of this year. If we raise in November then I expect rates to stay at that level,” he told reporters Thursday, adding that they could hold rates for the first two quarters in 2024.

The Monetary Board as expected revised the inflation forecasts for this year and in 2024.

BSP Senior Assistant Governor Iluminada T. Sicat said they now forecast average inflation of 5.8 percent for 2023, which was higher than its Aug. 16 estimate of 5.6 percent.

The BSP also increased the 2024 inflation forecast to 3.4 percent from 3.3 percent previously, while the 2025 projection is maintained at 3.3 percent.

Meanwhile, Remolona said the inflation average, currently at year-to-date as of end-August at 6.6 percent, will remain above-the-target at two percent to four percent until October. He expects that by November this year, the consumer price index (CPI) will fall to within the target range or below four percent.

On the other hand, for the month of September, Sicat said they forecast CPI will still be elevated but she did not say if it will be higher than August inflation of 5.3 percent.

“Our expectation with regards to inflation trend for September would still be above the target range but we will see this easing and revert back to 2-4 percent come November. So we will see some easing,” she told reporters.

The target RRP rate has been on hold at 6.25 percent, and the BSP at a paused monetary stance, since March of this year, which means the policy rate has been unchanged for the past five straight policy meetings in a row.

“Rate cuts this year 2023 are off the table. But rate hikes are not off the table,” said Remolona, adding that “we’re ready to raise if the supply shocks are significant enough." 

At this point, upside risks to CPI are still considered a threat to the inflation outlook.

When asked if the US Federal Reserve’s decision to maintain its own rates on Sept. 19 (US time) had any influence on Thursday’s hold decision, the BSP chief said it “figured very slightly”.

“The US Fed decision this morning (Philippine time) suggested a bit more dovish stance this year and a bit more hawkish stance next year. Maybe just one rate increase this year instead of two. And then maybe next year, instead of a total 100 bps (basis points) reduction, it looks like (it will only be) 50 bps reduction in the Fed funds target,” said Remolona.

This early hint of the US Fed monetary stance will make the US dollar stronger.

“Next year (there) may be a stronger dollar than otherwise because it’s a more hawkish stance. But it’s going to be very slight in our estimate in terms of its effect on the Philippines,” he said.

The Monetary Board on Thursday also maintained the interest rates on the overnight deposit at 5.75 percent and lending facilities at 6.75 percent.

Remolona said that while food and transport prices continue to drive headline inflation, core inflation has moderated further, implying an easing in underlying pressures.

With a higher CPI forecasts of 5.8 percent in 2023 and 3.5 percent in 2024, he said this reflects the spillovers from weather disturbances, rising global crude oil prices, and the recent depreciation of the peso.

“The balance of risks to the inflation outlook remains skewed toward the upside. The major upside risks to the inflation outlook are the potential impact of further adjustments in transport fares and electricity rates. At the same time, the Monetary Board noted that recent indicators of domestic economic activity pointed to waning pent-up demand, even as the impact of prior monetary policy tightening continues to weigh on credit,” said Remolona.

As such, he noted that given these considerations, the Monetary Board “deemed it appropriate to maintain its pause amid the emerging upside risks to the inflation outlook.”

The Monetary Board has also reiterated the need for non-monetary interventions such as the temporary import tariff cuts with "calibrated volumes and timely arrival of import commodities."