BSP Maintains Tight Monetary Policy Amid Inflation Easing

The Philippine central bank, Bangko Sentral ng Pilipinas (BSP), is maintaining a cautious stance on monetary policy despite a recent easing in inflation. In November, the consumer price index rose by 4.1%, marking the lowest rate of growth since March 2022 and falling below the 4.3% forecast. This is a decrease from the 4.9% inflation rate recorded in October. Despite this slowdown, the BSP is committed to keeping monetary policy settings “sufficiently tight” until a sustained downtrend in inflation becomes evident.

The BSP’s cautious approach is driven by the overall average inflation rate for the year to date, which stands at 6.2%, significantly above the central bank’s target range of 2% to 4%. This has led the central bank to assert its readiness to take appropriate action as needed to steer inflation back to its target range. The central bank also acknowledges that the balance of risks in the inflation outlook leans significantly towards the upside.

Core inflation, which excludes volatile food and energy costs, was at 4.7% in November, down from 5.3% the previous month. The BSP’s last meeting of the year on December 14 will be crucial in determining the future course of monetary policy. In November, the central bank maintained interest rates at 6.5% following an off-cycle 25-basis point hike on October 26, driven by concerns that inflation could spiral out of control.

A Reuters poll of economists indicated a divided opinion on the likelihood of another rate hike in December. While some economists expect the central bank to hold rates at 6.5%, others anticipate a hike to 6.75% by the end of December. This reflects a broader uncertainty about the trajectory of inflation and the BSP’s policy response. The central bank has revised its average inflation projection for 2024 to 4.7%, indicating that a return to the target inflation range may not be imminent, and suggesting that any potential rate cuts could be delayed​​​​​​​​​​​​​​​​​​​​.