MANILA (June 27): The Philippine central bank kept its policy rate steady on Thursday, for the sixth straight meeting, with its next move likely to be a rate cut as a government order to cut rice tariffs helps cool inflationary pressures.

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.

BSP governor Eli Remolona said the monetary board expected price pressures to ease further in the second half when rice import duty is slashed to 15% from 35%. The tariff cuts, to run through 2028, will be implemented next month.

"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.

"Cutting ahead of the Fed is still a tricky endeavour that requires precision and luck," HSBC said in a note. It has pencilled in a first BSP rate cut in the fourth quarter.

"Timing will be key to ensure that the rate cut wouldn't lead to too much volatility in the peso," it added.

The peso, which rose modestly before the decision, was steady after the central bank announcement.

Following a review of medium-term economic targets, Budget Secretary Amenah Pangandaman said on Thursday the government has slightly revised its foreign exchange rate assumption to 56 to 58 pesos to the dollar for this year from 55 to 57 previously.

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.

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%, which should bode well for the Philippines' consumption-driven economy.

Pangandaman told a press conference the government was keeping its GDP growth target of 6.0%-7.0% for this year and 6.5%-7.5% goal for next year.

Uploaded by Magessan Varatharaja