The Bangko Sentral ng Pilipinas (BSP) announced on Monday that it would maintain its key policy rate at 6.5 percent. This decision was made during a meeting of the Monetary Board, where they left the target reverse repurchase rate untouched at its current level.
The BSP’s decision to hold steady on interest rates was in line with market expectations, especially after inflation rose to 3.7 percent year-on-year in March. Despite staying within the central bank’s target range of 2 to 4 percent for the fourth consecutive month, inflation edged closer to the upper limit of the range.
Rice prices, which saw a significant increase in March, were a major contributor to the higher inflation rate. The costlier rice led to a 15-year high in rice price gains and pushed overall food inflation to 5.7 percent, the highest since November 2011.
While the BSP kept its policy rate unchanged, it revised its baseline inflation forecast for the year to 3.8 percent. The central bank also maintained its price growth projection for 2025 at 3.2 percent.
Banks use the BSP’s benchmark rate to determine interest rates on loans. By keeping borrowing costs higher, the BSP aims to manage demand for goods and services with limited supply, thereby controlling inflation.
Despite the BSP’s current stance on inflation, BSP Governor Eli Remolona Jr. indicated that the central bank is considering easing rates in the third quarter if inflation softens and economic growth weakens. This would mark a shift from the bank’s recent trend of raising rates to combat inflation.
Economic analysts, such as Miguel Chanco from Pantheon Macroeconomics, predict that inflation may peak in April before gradually declining. This could lead to rate cuts later in the year, with the first potential cut as early as June.
Overall, the BSP’s decision to keep rates unchanged reflects its cautious approach to managing inflation while also staying responsive to economic conditions.
