Philippines Central Bank Held Rates at 6.25%, Highest Since May 2007 as Inflation Moderates

The Monetary Board of the Bangko Sentral ng Pilipinas (BSP), Philippines central bank held rates at 6.25%. Rates are now the highest since the 7.50 percent logged in May 2007. Since it started raising interest rates in May last year, the BSP has so far increased key policy rates by 425 basis points (bps), making it the most aggressive central bank in the region. Governor Felipe Medalla said “I would like to see two months of below 4% inflation before considering cutting.” Inflation was 6.1% y/y in May as the Governor leaned against nearer-term easing.

Illustration: David Simonds/Observer

Today’s decision extends the BSP’s “prudent pause” to two meetings and we could see BSP on hold for a couple of more meetings if inflation continues to moderate and head closer to target. BSP expects inflation to settle within its target band as early as September, although the central bank did indicate that risks to the inflation outlook remain tilted to the upside.


  • BSP’s 2023 inflation forecast was adjusted lower (5.4% year-on-year from 5.5% previously)
  • Inflation is forecast above the central bank’s target range of 2% to 4%.
  • BSP’s 2024 inflation forecast was raised to 2.9%YoY from 2.8%.
  • BSP expects 2025 inflation to settle within target at 3.2%YoY.

A looming bout with El Niño (the unusual warming of the eastern Pacific Ocean which subsequently drives surface air temperatures and pressure changes throughout the equator) could force food prices higher, and thus BSP has left the door open for further tightening if warranted.

Bank of the Philippine Islands lead economist Jun Neri said in the past supply remains the major source of inflation.

Medalla’s last meeting?

Today’s policy decision could be the last policy move for Medalla, whose term ends by the close of the month. President Ferdinand Marcos has yet to decide whether to reappoint Medalla to a second term or choose another candidate.

Marcos’ choice for governor will likely inform the outlook for BSP’s policy stance.


Deputy Gov. Dakila has signaled in the past that the central bank could intervene to support the peso,

“The [central bank] stands ready to participate in the foreign exchange market only to ensure orderly market conditions and to reduce excessive short-term volatility in the exchange rate,” he has said.

Dakila in a previous interview said the potential impact of higher global oil prices, petitions for further transport fare hikes, weather disturbances affecting food prices, and a sharp increase in the price of sugar all remain. He said the latest rate hike should “help alleviate some pressures” on the peso, even though the increase is smaller than the U.S. Fed’s latest adjustment.

Source: TC

From The TradersCommunity Research Desk