Expectation is that the BSP key rate will remain at 6.25% for an extended period

Bangko Sentral ng Pilipinas Governor Felipe Medalla. Photo from the BSP’s Facebook page

In Manila, the Bangko Sentral ng Pilipinas (BSP) is expected to extend the pause on benchmark rate hikes for the next quarter or two. According to BSP Governor Felipe Medalla, the fight against inflation has been successful, with the monthly headline inflation rate decreasing to 6.1% in May from a peak of 8.7% in January. In the recent policy meeting held on June 22, there were minimal arguments for either a rate hike or rate cut, resulting in the overnight borrowing rate remaining unchanged at 6.25%. Medalla predicts that unless there are unexpected surprises, inflation is expected to be below 4% by October or November. Economists at Pantheon Macroeconomics and GoldmanSachs also agree that the BSP will maintain its current rates for the foreseeable future, with rate cuts possibly happening in the fourth quarter of this year or the first semester of 2024.

However, the Bank of the Philippine Islands believes that there is still a possibility of one or two rate hikes for the rest of the year, depending on how the foreign exchange market reacts to potential hikes by the US Federal Reserve. ING Bank anticipates that if inflation continues to moderate and head closer to the target range, the BSP policy rate will remain unchanged for two more Monetary Board meetings. They also see the possibility of rate cuts once inflation settles back within the target range.

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