Philippines: Prolonged hold anticipated following BSP's unscheduled action – UOB

Philippines Central Bank Maintains Interest Rate Amid Rising Inflation and Geopolitical Tensions

According to Julia Goh and Loke Siew Ting from UOB’s Global Economics & Markets Research, the Bangko Sentral ng Pilipinas (BSP) has decided to keep its Reverse Repurchase Rate (RRP) steady at 4.25% during an unscheduled meeting. This move comes as inflation driven by supply issues and uncertainties in the Middle East continue to mount. The central bank is anticipated to hold its policy rate for an extended period, with future decisions likely to be influenced by underlying inflation trends and secondary effects, while fiscal policy is expected to play a more prominent role.

Extended Policy Pause Expected from BSP

Given the unpredictable nature and potential impact of the ongoing Middle East conflict, the BSP is adopting a cautious approach and is not expected to adjust the RRP rate in the near term.

With domestic demand remaining subdued and the cost of living staying high, there is further justification for the central bank to maintain its current stance. Fiscal interventions are also expected to become increasingly important in addressing the economic challenges arising from the conflict.

Overall, the BSP is likely to continue evaluating its policy on a meeting-by-meeting basis, keeping a close watch on global developments.

Following the recent meeting, the BSP Governor indicated that additional unscheduled meetings could be convened if the situation in the Middle East worsens and poses greater risks to the Philippine economy.

He also mentioned that the central bank is prepared to provide liquidity support to the financial sector if necessary, and may consider further reductions in the reserve requirement ratio, potentially lowering it to around 2.00%.