Philippine central bank stays on hold, maintains hawkish tone

By Neil Jerome Morales and Mikhail Flores

MANILA (Reuters) – The Philippine central bank kept its policy rate steady at 6.5% on Thursday, as expected, warning that its fight with inflation was not over and it could raise rates again.

Risk to the inflation outlook “still leans significantly toward the upside,” the central bank said even as it lowered its “risk-adjusted” inflation forecasts for this year and next, which remain well outside its 2%-4% target range.

The central bank raised rates in an off-cycle review last month to the highest since mid-2007. It has raised rates 450 basis points since May 2022.

“The Monetary Board continues to deem it necessary to keep monetary policy settings sufficiently tight until a sustained downtrend in inflation becomes fully evident and inflation expectations are firmly anchored,” Deputy Governor Francisco Dakila told a media briefing.

The Bangko Senral ng Pilipinas reiterated it was prepared to “resume policy tightening as necessary to steer inflation towards a target consistent path.”

The central bank lowered its inflation estimate for this year and next to 6.1% and 4.4%, respectively, from 6.2 and 4.7% previously, following recent signs of easing price pressures. For 2025, it gave a forecast of 3.4%.

Like many countries in the world, the Philippines has been grappling with high inflation which has dampened domestic demand, a key driver of growth, and has forced the central bank to aggressively hike rates.

The Philippines peso fell 0.2% to 55.79 against the U.S. dollar, largely unchanged after the central bank’s decision on Thursday, correctly predicted by 16 out of 23 economists in Reuters poll. The rest expected a 25 basis point hike.

“The Monetary Board noted keeping the policy rate steady will allow previous policy rate adjustments … to continue to work their way through the economy,” Dakila said.

Thursday’s decision to leave rates unchanged followed the central bank’s off-cycle 25 basis point hike on Oct. 26, and Nov. 9 data that showed the economy posted a faster-than-expected expansion of 5.9% in the third quarter.

Ahead of the policy rate decision, BSP Governor Eli Remolona told an economic briefing in San Francisco inflation could ease back to the 2%-4% target range next year but the country is “not out of the woods yet”.

Some economists were divided over the outlook for policy, with Capital Economics saying the central bank’s tightening cycle is over, while ING is not completely ruling out further hikes should inflation risks flare up again.

BSP’s next scheduled meeting is on Dec. 14, its last for the year.

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