Philippines: BSP kept rates unchanged – UOB

Bangko Sentral ng Pilipinas (BSP) extended a pause in its tightening cycle for the third straight meeting, as widely expected. It left the overnight reverse repurchase (RRP) rate untouched at 6.25%, the overnight deposit rate at 5.75% and the lending facility rate at 6.75%.  

Today’s (17 Aug) monetary policy decision came after the national inflation decelerated to a 16-month low in Jul and the country’s economy grew at a slower-than-expected pace in 2Q23 with a broad-based slowdown in domestic demand. The Monetary Board (MB) added that an extended rate pause would further allow the central bank to assess the lagged effects of past interest rate hikes since May 2022 while continuing to guard against the emerging risks to the inflation outlook. On that note, the central bank revised up its inflation projections through 2025, mainly reflecting higher oil price forecasts, persistent food supply constraints and domestic policy changes. 

In the latest monetary policy statement (MPS), we sense that BSP is now prioritizing the domestic growth outlook over a potential return of inflation risk. This is premised on two additional lines specifically highlighting weaker growth prospects compared to Jun’s statement, with a same inflation storyline. Given the overall tone of the latest MPS and forward guidance remain in line with our expectation (refer to our 2Q23 GDP report for details), we maintain our view that BSP will continue to leave its RRP rate unchanged at 6.25% in the remaining months of the year, and no rate cuts ahead of the US Fed. The MB will next meet on 21 Sep, right after the US Fed announces its Sep interest rate decision.