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May 27, 2024

BSP raises benchmark rate by 25 basis points, cites external risks as key factor

The Monetary Board raised its benchmark interest rate by 25 basis points to 6.25 percent on Thursday, March 23.

This move was in line with market expectations, and aimed at keeping inflation below four percent by the end of the year.

During a media briefing, BSP Governor Felipe M. Medalla indicated that it was too early to predict whether the bank would pause or hike rates when they meet again on May 18.

This is due to the possibility of external shocks, such as geopolitical tensions or higher global fuel prices, which could influence their decision-making over the next eight weeks.

Despite the uncertainties, both Medalla and BSP Deputy Governor Francisco G. Dakila Jr. expressed confidence that the central bank was moving in the “right direction” towards achieving their inflation target.

The BSP now expects average inflation of six percent for 2023, a slight decrease from their previous projection of 6.1 percent.

They also lowered their inflation estimate for 2024 to 2.9 percent from 3.1 percent.

Officials cited several reasons for the downward adjustment in inflation forecasts, including the slightly lower February inflation rate, the more challenging growth outlook, and the cumulative impact of interest rate increases in the last nine rate policy meetings.

Medalla emphasized that high inflation is not necessarily detrimental to the economy, as demand remains strong in some sectors.