• The Monetary Board of Bangko Sentral ng Pilipinas (BSP) in its first Monetary Board meeting for the year retained its Target Reverse Repurchase (RRP) rate at 6.50%. It was within expectations
  
  − The interest rates on overnight deposit and lending facilities were also kept at 6.00% and 7.00%, respectively.
  
  − BSP statement: “The Monetary Board deems it appropriate to keep the monetary policy settings unchanged in the near term amid the improvement in inflation conditions.” It also added, “BSP remains ready to adjust monetary policy settings as necessary, in line with its mandate to ensureprice stability.”

• Inflation outlook was broadly unchanged, while domestic growth expected to moderate
  
  − GDP: BSP expects domestic growth momentum to remain intact over the medium term, but it flagged a cautious tone, as it stated that “recent indicators also suggest that economic activity couldmoderate in the near term as the full impact of the BSP's prior monetary policy tightening continues to manifest.”
  
  − Inflation: Its risk-adjusted inflation forecast for 2024 has been revised down to 3.9% from 4.2%, indicating that the inflation outlook is now expected to reach the government’s target range of 2.0% - 4.0%. However, the estimate for 2025 was revised slightly higher at 3.5% from 3.4%. Overall, the inflation outlook seems more balanced though broadly unchanged. This is largely as BSP stated that “the risks to the inflation outlook have receded but remain tilted towards the upside”. The upside risks to inflation are mainly due to several factors: higher transport charges, increased electricity rates, and higher oil and domestic food prices. However, it sees government measures to be able to mitigate the impact of El Nino, managing the inflation outlook.
  
  − Currency: As of February 14, most regional currencies depreciated against the US Dollar compared to the end of 2023. The peso fell (-1.3%) to 56.12, but this is relatively lower than the depreciation in other regional peers, such as the ringgit (-4.2%) and baht (-3.6%).

• Policy easing is unlikely anytime soon, but we are pencilling a 75 bps cut towards the end of the year
  
  − The central bank is expected to keep its policy rate steady especially in the 1H24 amid heightened global financial uncertainty and the adverse impact of El Nino on domestic inflation. However, we believe there is ample room to cut rates in a bid to boost economic growth, given that the current restrictive monetary policy stance which is a 16-year high is expected to weigh on consumer spending, subsequently dampening growth outlook.
  
  − USDPHP year-end forecast (54.4; 2023: 55.4): we retain our forecast at the moment given that we missed the target last year amid uncertainty over the US Fed policy direction. Our current assumption is mainly based on the expectation of a dovish shift by the US Fed as we expect rate cuts to materialise in the 2H24, while also supported by China’s gradual economic recovery.Bangko Sentral ng Pilipinas Rate Decision Holds interest rate steady at 6.50%, a 16-year high

Source: Kenanga Research - 16 Feb 2024