BSP to keep policy stance unchanged

Monetary authorities may keep the benchmark interest rates unchanged in the near term as inflation quickened for the first time in five months, and could accelerate further to above the two to four percent target in the second quarter.

Based on data from the Philippine Statistics Authority, inflation rose to 3.4 percent in February from 2.8 percent in January, the highest in two months or since the 3.9 percent recorded in December.

However, February inflation marked the third straight month that inflation stayed within the two to four percent target of the Bangko Sentral ng Pilipinas (BSP).

Last month’s inflation outturn was also within the BSP’s forecast range of 2.8 to 3.6 percent.

“This inflation outturn is consistent with the BSP expectations that inflation will likely remain within the target range in the first quarter of 2024 due largely to negative base effects,” the BSP said.

But inflation could still quicken to above the target in the second quarter due to the impact of El Niño on agricultural production and positive base effects, the central bank said.

“The risks to the inflation outlook have receded but remain tilted toward the upside,” it said.

According to the BSP, higher transport charges, electricity rates, oil and domestic food prices as well as the additional impact of a strong El Niño episode are key upside risks to the inflation outlook.

On the other hand, implementation of government measures to mitigate the effects of El Niño could ease some price pressures.

“Looking ahead, the Monetary Board deems it appropriate to keep the BSP’s monetary policy settings unchanged in the near term amid the improvement in inflation conditions,” the BSP said.

“The BSP also continues to support the national government’s non-monetary measures to address supply-side pressures on prices and sustain the disinflation process,” it added.

BSP Governor Eli Remolona Jr. earlier discounted the possibility of a rate cut within the first half of the year, saying such a policy move is “too soon.”

The BSP has emerged as the most aggressive central bank in the region after hiking key policy rates by 450 basis points since May 2022 to fight inflation and stabilize the peso. This brought the key rate to 6.5 percent, the highest in nearly 17 years.

ING senior economist Nicholas Mapa said the BSP is expected to extend its pause at its second ratesetting meeting on April 4 due to the February inflation outturn.

“If inflation manages to stay relatively subdued and the Fed finally starts to ease, we expect the BSP to likewise begin its easing cycle to give economic growth added support in the face of challenging global headwinds,” he said.

HSBC economist for ASEAN Aris Dacanay said the unexpected February inflation figure may risk delaying the start of the BSP’s easing cycle.

“If inflation surprises to the upside again or if risks to inflation materialize during the sensitive period in the second quarter, then there is a risk that the BSP will instead cut after the Fed, keeping the BSP rate at 6.5 percent for a longer period than we expect,” Dacanay said.