Economist at UOB Group Loke Siew Ting reviews the latest BSP monetary policy meeting.
“Bangko Sentral ng Pilipinas (BSP) raised its overnight reverse repurchase (RRP) rate by 50bps to 6.00%, marking the eighth straight meeting of increases since May last year. It wasn’t a surprised move as we have highlighted in our Jan CPI report that both stronger-than-expected Jan inflation and 4Q22 GDP outturns have cemented the case for a more restrictive monetary policy setting. Cumulatively, BSP has tightened its monetary policy by 400bps, the most aggressive since 2000.”
“The Monetary Board (MB) judged a strong follow-through monetary policy response today (16 Feb) as necessary (i) to reduce the risk of a breach in the inflation target in 2024 after consumer price inflation is projected to hit an average 6.1% this year (which is an upward revision from BSP’s previous forecast of 4.5% in Dec 2022, UOB est: 6.0%); (ii) to prevent inflation expectations from drifting further away from the 2.0%-4.0% target band; and (iii) to contain demand-side pressures and second-round effects without unduly hindering the sustained momentum of economic growth.”
“We now expect BSP to jack up its RRP rate to 6.75% by the middle of this year (from a previous estimate of 6.00% by 1Q23). Our new BSP outlook is mainly to reflect an upward revision in inflation projection last week (7 Feb) for the Philippines this year and a revised timeline for US Fed rate to hit its peak in 2Q23. After that, we believe that a consistent gradual slowdown in inflation following the most aggressive interest rate hikes since last year and moderate growth prospects would allow BSP to take a long pause on its rate hikes in 2H23, keeping the RRP rate at 6.75% until year-end.”