Due to its location in the Pacific region, the Philippines has often experienced the adverse consequences of El Niño — a natural climate pattern characterized by warmer-than-average sea surface temperatures in the Pacific Ocean. This phenomenon disrupts global weather patterns, leading to extreme weather events, temperature variations, and other environmental changes.
With its predicted return in 2024, experts have warned Filipinos to be prepared for El Niño, especially the possibility that it could result in water shortages, droughts, losses in agricultural and even disruptions to everyday life.
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Cognizant of this phenomenon’s devastating consequences in the past, the Monetary Board has recently decided to keep the Bangko Sentral ng Pilipinas (BSP)’s Target Reverse Repurchase (RRP) Rate unchanged at 6.50 per cent. At its meeting earlier this week, the board announced that the interest rates on the overnight deposit and lending facilities would be kept at 6.0 per cent and 7.0 per cent, respectively.
Outlook for inflation in PH broadly unchanged
In a media advisory, the BSP shared that the latest risk-adjusted inflation forecast for 2024 had eased to 3.9 per cent from the 4.2 per cent reported in the previous meeting in December.
For 2025, the risk-adjusted inflation forecast is relatively steady at 3.5 per cent from 3.4 per cent.
Equally important, the BSP’s latest survey of external forecasters shows inflation expectations to be more firmly anchored, with mean forecasts remaining within the target range for 2024 and 2025.
Meanwhile, the risks to the inflation outlook have receded but remain tilted toward the upside.
The upside risks to the inflation forecasts are linked mainly to higher transport charges, increased electricity rates, higher oil and domestic food prices, and the additional impact on food prices of the strong El Niño episode.
On the other hand, the implementation of government measures to mitigate the impact of El Niño weather conditions is the primary downside risk to the outlook.
Given the salience of rice prices, the recent agreement with Vietnam to secure rice supply over the next five years is encouraging. Moreover, the efforts to increase productivity in the rice sector, including the distribution of drought-resistant seeds, are a step in the right direction.
The sustained expansion in output in Q4 2023 reaffirms the BSP’s view that the country’s growth momentum remains intact over the medium term.
However, recent indicators also suggest that economic activity could moderate in the near term as the full impact of the BSP’s prior monetary policy tightening continues to manifest.
In consideration of the prevailing risks, the Monetary Board deems it appropriate to keep the BSP’s monetary policy settings unchanged in the near term amid the improvement in inflation conditions.
The BSP also continues to support the national government’s non-monetary measures to address supply-side pressures on prices and sustain the disinflation process.
The BSP remains ready to adjust its monetary policy settings as necessary in keeping with its primary mandate to safeguard price stability.