BSP keeps policy rate at 6.5% in Philippines

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The Bangko Sentral ng Pilipinas' (BSP) Monetary Board (MB) decided to retain its key policy rate.

In the MB's first policy rate meeting in 2024, the MB held steady at a 6.5% benchmark interest rate, as the country's inflation continued to lean on the upside.

'The MB noted that the outlook for inflation was broadly unchanged,' BSP Senior Assistant Governer Illuminada Sicat said in a press conference on Thursday.

This marks the third time the MB had retained its rate. The current 6.5% rate has been steady since October 2023.

The MB attributed the inflation forecasts to 'higher transport charges, increased electricity rates, higher oil and domestic food prices and the additional impact on food prices of a strong El Niño episode.'

The central bank also said that the main downside risk to the outlook is the implementation of government measures to mitigate the impact of El Niño weather conditions.

The BSP noted that the government is a 'step in the right direction' to control rice prices by securing a five-year supply agreement with Vietnam and focusing on enhancing the rice sector's productivity.

The agreement, signed by the Philippines and Vietnam last January 30, stipulates that Vietnam, through its private sector, will supply the Philippines with 1.5 million to 2 million metric tons of white rice annually to ensure a sustainable food supply.

Despite the risks, however, Sicat said that the country's inflation risks have improved compared to last December.

"Risks have improved compared to last December. But we (BSP) continue to be hawkish looking at the developments here and abroad," she said in a press conference.

Meanwhile, interest rates on overnight deposit and lending facilities remained unchanged at 6.0%-7.0%.

BSP Governor Eli Remolona Jr. has previously mentioned that the MB will consider reducing the interest rate when inflation stabilizes within the government's target range of 2% to 4%.

'The BSP remains ready to adjust its monetary policy settings as necessary in keeping with its primary mandate to safeguard price stability,' the BSP said in a press release.

On February 6, the Philippine Statistics Authority reported a further dip in inflation by 2.8%, the second month the inflation print was within the central bank's target.