Philippines Central Bank To Hold Interest Rate At 6.25%

The Philippines central bank said that they might pause the interest rate this Thursday, noting that inflation has eased in the last few months.

Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla told reporters at financial stability conference on Monday, "If you're sure this is a permanent trend, clearly we must pause because there will be no need for another one," Reuters reported.

The governor also predicted that the "next year will be a year of good growth and good inflation."

Finance Secretary Benjamin Diokno also hinted last week that as the inflation is declining, the bank could pause the interest rate. "I'm for a pause, that's my opinion," he said on May 12.

The International Monetary Fund explained on the same day that "a continued tightening bias may be appropriate until inflation falls decisively within the 2-4 percent target range."

Philippine annual inflation has eased for the third month straight to 6.6 percent in April and the National Economic and Development Authority (NEDA) noted that the inflation rate might reach the government's target of 2-4 percent by the fourth quarter.

Medalla explained last month that month-on-month inflation trends "present an even stronger argument" for the bank to pause the interest rates in the upcoming policy meeting to be held this Thursday (May 18).

An economist at DBS, Han Teng Chua said, "We expect the BSP to move to a hawkish pause during this week's meeting... by keeping its policy rate unchanged at 6.25 percent. Policymakers should be comforted by the pullback in inflation prints since February, with downward revisions to inflation forecasts potentially on the cards."

He added, "We will also be watching closely for forward guidance that might inform future decisions."

The consumer price index (PHCPI=ECI) was 6.6 percent last month. Earlier this year, the consumer price index was 8.1 percent. At that time, BSP said that the "upside risks continue to dominate the inflation outlook up to 2023 while remaining broadly balanced in 2024."

"The BSP remains prepared to take all monetary policy action necessary to bring inflation back to a target-consistent path over the medium term," the BSP added. The bank said at that time the target set for 2023 is a 2-4 percent rate.

A senior economist at financial services corporation, ING named Nicholas Mapa said, "(Price) pressures are broad-based and should result in only a slow grind lower for inflation in 2023."

The first policy meeting this year was held on Feb. 16. The second meeting was held on March 23 and the upcoming one will mark the third. As per the schedule shared on the official website, there will be a total of eight meetings held this year.