MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) maintained its key policy rate, marking the fourth consecutive time in which the Monetary Board held it at 6.25%.

In a rate-setting meeting on Thursday, August 17, the Monetary Board decided not to lower or raise the key policy rate. The last time the Board hiked rates was in March, when it went up by 25 basis points (bps).

After the BSP hiked rates by a total of 425 bps since May 2022, inflation in the country has finally begun to fall, settling so far at 4.7% in July. Although year-to-date inflation is still at 6.8%, central bank officials believe that it will fall within the government’s target range of 2% to 4% by the fourth quarter of 2023.

But hiking interest rates to counter inflation also comes with the cost of possibly dampening investments and overall demand. In fact, the steep rise of interest rates has been cited as one of the reasons for the dismal 4.3% gross domestic product growth in the second quarter of 2023. (READ: [ANALYSIS] After a year under Marcos, is PH economy grinding to a halt?)

BSP Governor Eli Remolona said that the Monetary Board took into consideration the effect of the hikes on the economy when they settled on the August 17 policy rate decision.

“We analyze what the data says, what the data says about how far the tightening has worked through the economy, how far its weakened the demand in the economy. Tinitignan namin lahat ‘yon (We look at all that),” he said during a Department of Finance press conference on August 4.

Now, the question remains: what direction will the Monetary Board take after this pause? Remolona warned that the economy is “very close [to] full capacity at this point.”

“If we’re going to hike, we have to be very careful not to hike too much. Konti lang siguro muna. But if we’re going to cut, there’s room to cut,” he said last August 4. – Rappler.com