MANILA – Domestic economic challenges were among the factors that Philippine monetary authorities looked into during their policy meeting on Aug. 17, wherein they decided to keep key rates steady.
Based on the minutes of the meeting released by the Bangko Sentral ng Pilipinas (BSP) on Thursday, the policy-making Monetary Board considered it appropriate to maintain the key rates amid the rise in the projected path of inflation rate relative to past assessments.
BSP’s overnight reverse repurchase (RRP) rate is still at 6.25 percent, the overnight deposit facility rate at 5.75 percent, and the overnight lending rate at 6.75 percent.
During the Board’s policy meeting in August, the fifth for the year, projected average inflation for this year was hiked to 5.6 percent. For 2024, the forecast is for an average of 3.3 percent while it is at 3.4 percent for 2025.
These projections are higher than the figures during the Board’s rate-setting meeting on June 22.
During that meeting, the 2023 average inflation forecast was 5.4 percent while it was 2.9 percent for 2024, and 3.2 percent for 2025
The rate of domestic price increases ended its six-month deceleration when it registered an uptick to 5.3 percent in August from the previous month’s 4.7 percent.
Average inflation in the first eight months of the year stood at 6.6 percent, way higher than the government’s 2 percent to 4 percent target band.
The minutes of the meeting said “balance of risks to the inflation forecast continues to lean towards the upside” due to price pressures from “possible higher transport charges, higher minimum wage adjustments, persistent supply constraints on key food items, and the effects of El Niño weather conditions on food prices and power rates.”
“Meanwhile, a weaker-than-expected global economic recovery remains the primary downside risk to the inflation outlook,” it said.
On the back of the upside price pressures, the BSP said the “Board also recognized the challenging outlook for economic growth, as the weaker GDP (gross domestic product) outturn for the second quarter of 2023 reflected a broad-based slowdown in domestic demand.”
“Household consumption slowed due to elevated commodity prices, while government spending contracted relative to the previous year,” it said.
The report also said the monetary officials “noted that the strength of economic activity going forward is likely to moderate as pent-up demand wanes and the full impact of prior monetary policy tightening continues to manifest.”
Growth, as measured by GDP, slowed to 4.3 percent from April to June this year, the third consecutive quarter of slowdown after an uptick in the third quarter of 2022.
Average growth in the first half of this year stood at 5.3 percent, lower than the government’s 6 percent to 7 percent growth assumption for the year.
Monetary authorities said the government’s push to increase public spending, as well as to strengthen the implementation of non-monetary measures to boost supply-side pressures are seen to help address the weaker domestic output in the second quarter of the year.
“Given these considerations, the Monetary Board deemed it appropriate to maintain monetary policy settings to allow a moderation of inflation even as authorities continue to assess the emerging risks to the inflation outlook,” according to the minutes of the meeting. (PNA)