Philippine C.Bank Holds Rates Steady, Next Move Likely a Cut

FILIPINA - MANILA. The Philippine central bank kept its key interest rate steady on Thursday, for the sixth straight meeting, with its next move likely to be a rate cut as it expects inflation to slow after a government order slashing tariffs on rice takes effect.

The Bangko Sentral ng Pilipinas (BSP) kept the target reverse repurchase rate steady at 6.50%, and said it was on track to deliver its first 25-basis-point rate cut since November 2020 at its next meeting in August.

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BSP Governor Eli Remolona said the monetary board expected price pressures to ease further in the second half of the year with the implementation of an order slashing tariffs on the national staple to 15% from 35% through to 2028.

"If sustained, an improvement in inflation outlook would allow more scope to consider a less restrictive monetary policy stance," Remolona told a press conference.

A rate cut in August, which Remolona said could be followed by another quarter-point rate cut in the fourth quarter, would likely put the BSP ahead of major central banks including the Federal Reserve which is expected to deliver its first rate cut later this year.

While annual inflation has quickened for a fourth straight month in May to 3.9% from 3.8% the previous month, the five-month inflation average of 3.5% was well inside the central bank's 2.0%-4.0% target range.

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Remolona said the balance of risks to inflation has "shifted to the downside" for this year and next but upside pressures from higher rice, transport and electricity prices remain.

The BSP lowered its baseline inflation forecast for this year to 3.3% from 3.5% previously, as well as its projection for next year to 3.1% from 3.3%.