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The BSP has decided to continue their suspension of increasing interest rates.


By Keisha B. Ta-asan, Reporter

THE BANGKO SENTRAL ng flation pressures persist.

The Monetary Board maintained the 6.25% target for reverse repurchase (RRP) rate, which was predicted by 14 out of 17 analysts in a BusinessWorld survey conducted last week.

The interest rates for overnight deposits and lending remained the same at 5.75% and 6.75%, respectively.

The BSP Governor, Eli M. Remolona, Jr., stated in a press briefing that the Monetary Board has decided to maintain its pause due to the potential risks of inflation increasing.

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Possible events that could become loose.flation expectations.”

According to Mr. Remolona, the Monetary Board may increase borrowing expenses during its policy evaluation on November 16 if inflationary forces continue.

“In November, there is potential for a increase in interest rates. The magnitude of the increase will be determined by the data, specifically the extent of inflation.”

The BSP has increased interest rates by 425 basis points (bps) between May 2022 and March 2023 in order to control inflation.

NEW FORECASTS

The BSP has increased its projected inflation rates for 2023 and 2024, with a predicted average of 5.8% and 3.5% respectively. However, their forecast for 2025 remains unchanged at 3.4%.

Mr. Remolona said the hike in the inflation projections this year and 2024 refl

The text refers to external factors such as weather disturbances, increases in global crude oil prices, and the recent decrease in the value of the peso.

The changes were made by BSP Senior Assistant Governor Iluminada T. Sicat because August inflation was higher than anticipated and there was also a higher “nowcast” for September.   

Headline inflation unexpectedly rose for the first time in seven months to 5.3% in August from 4.7% in July. Inflation averaged 6.6% in the eight-month period.

a statement that he cannot reword

Despite the predictions being higher, Mr. Remolona stated that he is unable to reword.fl

In the absence of additional supply-side shocks, inflation is expected to reach the 2-4% target by November.

“According to him, although the cost of food and transportation remains a major contributor to overall inflation, there has been a decrease in core inflation, suggesting a decrease in underlying pressures. Furthermore, expectations for inflation remain in line with the targeted range for the foreseeable future.”

In August, the rate of food price increase rose to 8.2% from 6.3% in July. However, there was no change in transportation costs.fl

There was a 4.9% increase in activity in August, up from a -4.7% decrease in the previous month.

On the other hand, core infl

The inflation rate, which does not include the fluctuating prices of food and fuel, decreased to 6.1% in August compared to the previous year.

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The outlook for the economy continues to favor upward growth. The primary factors contributing to this potential growth are:fl

Mr. Remolona stated that the possible consequences of future changes in transportation fares and electricity rates should be closely monitored.

Transport organizations have submitted requests for a rise in fare rates due to the ongoing rise in fuel costs since mid-July.

According to the BSP head, the US Federal Reserve’s decision will have little effect on the Philippines.

The US Federal Reserve announced its intention to maintain higher interest rates for a longer period of time, while choosing to leave the target Fed fund rate at 5.25-5.5% during its meeting on Thursday.

“According to Mr. Remolona, it seems that next year there will only be a 50-bp reduction in the Fed fund target, rather than the previously anticipated 100-bp reduction. This could result in a stronger dollar due to a more hawkish stance.”

On Thursday, the domestic currency ended at P56.855 per US dollar, showing a decline of 4.50 centavos compared to Wednesday’s rate of P56.81.fi

As of now, the peso has decreased in value by 1.9% or P1.1 since its closing rate of P55.755 on December 29, 2022.

HIGHER FOR LONGER?

On the other hand, Mr. Remolona stated that he foresees no changes in policy for the remainder of this year and the first half of 2024.

“According to him, there will not be any interest rate decreases in both 2021 and 2023. However, the possibility of interest rate increases is still on the table.”

Currently, there appears to be a state of equilibrium between the amount of goods and services desired and the amount available. We are nearing the appropriate level for interest rates. Whether there will be a decrease next year will be determined by any negative developments in production.

Makoto Tsuchiya, an assistant economist at Oxford Economics, stated that the BSP may maintain its current stance in the remaining meetings of this year, and then begin implementing policy easing in the first quarter of 2024.

The speaker stated that although inflation increased in August, they anticipate it will remain within the BSP’s target range of 2-4% by the end of the year. This should pave the way for the first reduction in early next year.

ffect the company’s earnings”

According to Mr. Tsuchiya, the peso may continue to decrease in value later this year, but it is unlikely to have a significant impact on the company’s earnings.ff

This refers to monetary policy operations.

According to Senior Economist Nicholas Antonio T. Mapa from ING Bank N.V. Manila, the BSP will strive to maintain a balance between growth momentum and stability.flation.

“The only exception to this scenario would be a rate hike by the Federal Reserve, which could prod the BSP to follow with a rate hike to maintain the modest 75-bps interest rate diff

He mentioned that there would be a differential with the Federal Reserve.

Miguel Chanco, the Chief Emerging Asia Economist at Pantheon Macroeconomics, suggested that the BSP may reduce policy rates by 25 basis points in November.

“Admittedly, the risks to this call are skewed to the upside, given the rebuilding of noncore price pressures at the margin. Nevertheless, our forecast is predicated on the likely more urgent need to take pressure off

He stated that the economy is currently experiencing a minor technical recession.

According to Pantheon, the Federal Reserve has finished raising interest rates and they believe that inflation in the Philippines will reach its target range by October. This could lead to the beginning of a period of relaxing monetary policy.

The economic growth of the Philippines increased by 4.3% during the second quarter, marking the slowest rate in a span of two years. However, for the first half of the year, the average economic growth was 5.3%, falling short of the government’s target range of 6-7%.