Less hawkish BSP maintains policy rate

The Bangko Sentral ng Pilipinas (BSP) on Thursday kept its policy rate steady at 6.5 percent as it said prices of transport and food might still rise.

The unchanged rate means the interest rate on the overnight deposit stays at six percent and lending facilities at seven percent.

Declared BSP Governor Eli Remolona Jr., “The BSP’s latest forecasts indicate that inflation would settle close to the upper end of the target range.”

The central bank’s Monetary Board projects risk-adjusted inflation forecast this year to hit 3.8 percent.

The BSP aims to stabilize inflation within 2 to 4 percent by adjusting its policy rate.

Encouraging signs for lower rate

Remolona said last month’s inflation has provided initial encouraging signs for a lower BSP rate.

“We’re somewhat less hawkish than before, which means we can ease rates by the third or fourth quarter this year,” he said.

April inflation slightly rose to 3.8 percent from 3.7 percent in March, according to the Philippine Statistics Authority.

“The 3.8 percent was better than it looked because that included the positive base effects,” Remolona said as he emphasized that statistical comparison with previous periods naturally produced higher inflation.

Moderate food prices

BSP Deputy Governor Francisco Dakila Jr. said food prices might moderate in the near term as the weather improves farm productivity.

“El Niño is expected to end by the third quarter,” he said.

Based on annual growth, the statistics authority said rice prices in April declined to 23.9 percent from 24.4 percent.

Dakila said the BSP Monetary Board is confident that the existing policies of the Rice Tariffication Law for the National Food Authority (NFA) will remain helpful with lowering rice prices.

“In general we support efforts for liberalization. Rice inflation was broadly stable from 2019 to 2022 despite the Russia-Ukraine war which increased the price of fertilizers,” he said.

Direct rice importation

These statements came amid proposals from the House of Representatives to allow the NFA to directly import rice to ensure food supply, apart from buying from local farmers.

Dakila said the BSP also supports any plan to extend the implementation of the Rice Competitiveness Enhancement Fund which provides farmers with farming equipment. The Fund is valid for six years and will expire next year.

“Transport charges will be slightly lower. We have a new risk from toll rates but these are very minimal,” Dakila continued.

Dakila said the inflation rate might still exceed four percent in the next few months due to positive base effects, but stressed that growth risk is now “a bit lower.”

Steady BSP rate

While economic growth was tempered in the first quarter partly due to weaker household consumption, Dakila said the steady BSP rate will not drag the country’s economic growth significantly.

“That 5.7 percent economic growth is a very respectable number. It’s among the fastest in ASEAN,” he said.

In the first quarter last year, Philippine economic growth hit 6.4 percent.

Dakila said consumers likely tightened their fists for discretionary goods temporarily as food prices remained relatively high due to El Niño and India’s export ban on non-white basmati rice.

“We are already seeing that the global growth picture has seen improvement. The International Monetary Fund’s scenario before was that the downside risks to growth were emphasized; the outlook is now more even,” he said.