The Bangko Sentral ng Pilipinas (BSP) could consider reducing the target reverse repurchase (RRP) or the policy rate when it is comfortable already with the inflation level, BSP Deputy Governor Francisco G. Dakila Jr.
Dakila said the BSP’s policy-making body, the Monetary Board, will “look for a situation where inflation is comfortably on a path consistent with target before it would (consider) an adjustment.”
The BSP official was in Washington, D.C. last April 17 for a Philippine Dialogue with US investors and businessmen, as well as other multilateral funding agencies.
Dakila assured foreign investors that the current 6.5 percent RRP rate, although high, is still an appropriate monetary policy stance to ensure price stability as well as to keep inflation on a target-consistent path.
Inflation in March 2024 increased to 3.7 percent from 3.4 percent in February, bringing the year-to-date inflation rate to 3.3 percent. This is within the government’s target band of two percent to four percent.
The BSP as represented by Dakila, was joined by the Department of Finance (DOF) with Secretary Ralph G. Recto in Washington. The Department of Budget and Management (DBM) Secretary Amenah F. Pangandaman and National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan were also on hand to discuss the Philippine economy and budgetary issues.
The Philippine Dialogue in Washington was held on the sidelines of the International Monetary Fund-World Bank Group 2024 Spring Meetings.
“The dialogue updated the US business community about the Philippines’ economic performance, investment opportunities, and socioeconomic agenda,” said the BSP.
The event was attended by 90 participants from corporations, financial institutions, and development partners.
Earlier this month, BSP Governor Eli M. Remolona Jr. said the central bank may still cut the RRP rate by the last quarter of 2024 based on the assumption that the inflation path will decelerate further in the second half of this year.
For now, based on current conditions, Remolona said “the central scenario will be a fourth quarter” easing. “If things are worse, (then we will) postpone to the first quarter 2025,” he added.
There are several external factors that could affect inflation such as geopolitical tensions. Despite the Middle East conflict still raging, the BSP chief said ongoing tensions seem to have moderated.
Remolona said the geopolitical tensions will not have a “large” impact on the BSP’s monetary policy.
The BSP has continued to hold the key rate steady at 6.5 percent since it raised it by 25 basis points (bps) in an off-cycle decision last October 2023.
Last April 8, during a policy rate meeting, Remolona said then that they could cut the RRP rate by the third quarter this year depending on how inflation would turn out or how the state of the economy in terms of gross domestic product growth will perform.
He said they could consider a small cut or about 25 bps.
The BSP’s risk-adjusted inflation forecast for 2024 is four percent and 3.5 percent projection for 2025. These are all within the BSP target inflation band of two percent to four percent.
Despite persistent upside risks to inflation which have also raised expectations, the BSP said these expectations have remained “broadly anchored”.
The risks to the inflation outlook continue to lean toward the upside while possible further price pressures are linked mainly to higher transport charges, elevated food prices, higher electricity rates, and global oil prices. The potential minimum wage adjustments could also give rise to second-round effects, said the BSP.