Philippine central bank signals August rate cut after leaving policy unchanged

THE Philippine central bank on Thursday (May 16) signalled it could cut interest rates as early as August driven by recent inflation and growth numbers, after it kept its key policy rate steady for a fifth straight meeting.

The Bangko Sentral ng Pilipinas (BSP) said its policy-making monetary board voted to keep its target reverse repurchase rate unchanged at 6.50 per cent, which was correctly predicted by all 23 economists in a Reuters poll.

“We are somewhat less hawkish than before,” BSP governor Eli Remolona told a press conference, adding that it was possible rates could be cut in August, ahead of major central banks, including the US Federal Reserve.

The last time the BSP cut interest rates was Nov 19, 2020.

On Thursday, the central bank lowered its risk-adjusted inflation forecast for this year to 3.8 per cent from 4.0 per cent previously, but slightly raised its projection for next to 3.7 per cent from 3.5 per cent, saying risks to the outlook continued to lean to the upside.

Both forecasts were within the central bank’s 2.0 per cent-4.0 per cent target range and signalled a better inflation picture after consumer prices soared to 6.0 per cent in 2023.

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Annual inflation quickened for a third straight month in April to 3.8 per cent, bringing the average to 3.4 per cent in the first four months, which was within the central bank’s comfort range.

Central Bank deputy governor Francisco Dakila said improving inflation should “be supportive of consumption numbers going forward.”

Thursday’s decision came after a slew of data showing inflation has suppressed consumer spending, restraining the first-quarter economic growth at 5.7 per cent. The growth was below forecast but stronger than the previous quarter’s 5.5 per cent expansion.

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“Based on the latest GDP data, the expected path for domestic output growth over the medium term remains largely intact, even as recent indicators point to continued moderation under tight financial conditions,” Remolona said.

The government has set a growth target of 6.0 per cent-7.0 per cent for 2024. REUTERS