The Bangko Sentral ng Pilipinas (BSP) reiterated that amid rising inflation since October, it will continue to shift to a "less restrictive monetary policy" as inflation remains within the target range of two percent to four percent despite upside risks.
“On balance, the within-target inflation outlook and well-anchored inflation expectations continue to support the BSP’s shift toward less restrictive monetary policy. Nonetheless, the monetary authority will continue to closely monitor the emerging upside risks to inflation, notably geopolitical factors,” the BSP said on Tuesday, Jan. 7, after the government released the higher December inflation rate of 2.9 percent.
The consumer price index (CPI) climbed to last year’s peak of 4.4 percent in July but started to decline in August, reaching its lowest rate of 1.9 percent last September. However, it rose to 2.3 percent in October, and further to 2.5 percent and 2.9 percent in November and December, respectively.
The December CPI was within the BSP’s forecast range of 2.3 percent to 3.1 percent. The 2024 average inflation was 3.2 percent, the lowest in four years, and in line with the BSP’s own forecast. In 2023, CPI averaged six percent.
The BSP remains confident that the 2024 CPI inflation is consistent with its assessment that inflation is well-anchored to the target range over the medium term.
“Nonetheless, the balance of risks to the inflation outlook continues to lean to the upside due largely to potential upward adjustments in transport fares and electricity rates,” it said.
The BSP also noted that among the downside risks, the lower import tariffs on rice is a key factor, while domestic demand is expected to "remain firm but subdued."
Meanwhile, the easing inflation path and improving labor market will boost private domestic spending, said the BSP. "However, downside risks in the external environment could materialize and temper economic activity and market sentiment," it added.
The BSP’s policy-making arm, the Monetary Board, has adopted a measured approach to monetary policy easing to "ensure price stability conducive to sustainable economic growth and employment."
Last Dec. 19, the BSP reduced its target reverse repurchase (RRP) rate, or the policy rate, by another 25 basis points (bps). The BSP cut the key rate by a cumulative 75 bps in 2024, from 6.5 percent to 5.75 percent.
The BSP’s risk-adjusted inflation forecast for this year is 3.4 percent as of its last policy rate meeting. This estimate will likely be revised on Feb. 20, during the Monetary Board's first policy rate review for 2025.