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Philippine central bank to hold rates at 6.25% in May after nine straight increases

© Reuters. FILE PHOTO: FILE PHOTO: A logo of Bangko Sentral ng Pilipinas (Central Bank of the Philippines) is seen at their main building in Manila, Philippines March 23, 2016. REUTERS/Romeo Ranoco/

By Devayani Sathyan

BENGALURU (Reuters) – The Philippines central bank will likely leave its key interest rate unchanged at 6.25% on Thursday, and keep it there for the rest of 2023, marking an end to a year-long tightening cycle as inflation shows signs of cooling, a Reuters poll found.

Although annual inflation slowed to 6.6% in April from a peak of 8.7% in January, it remained well above the central bank’s target range of 2-4%, suggesting the cumulative rate hikes of 425 basis points are yet to have an impact.

But last month, Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla said the month-on-month inflation trends “present an even stronger argument” for the central bank to hold interest rates around current levels at its May policy meeting in May.

Sixteen out 22 economists polled by Reuters between May 9-15 expected the BSP to leave its overnight borrowing rate at 6.25% at the meeting on Thursday. The remaining six forecast another 25 basis point hike to a near 16-year-high of 6.50%.

“We expect the BSP to move to a hawkish pause during this week’s meeting… by keeping its policy rate unchanged at 6.25%,” Han Teng Chua, economist at DBS, noting other central banks in the region had taken a similar stance.

“Policymakers should be comforted by the pullback in inflation prints since February, with downward revisions to inflation forecasts potentially on the cards. We will also be watching closely for forward guidance that might inform future decisions.”

Among economists who had a long-term view, 11 of 19 expected the BSP to maintain rates at 6.25% until end-June. Of the remaining eight economists, seven predicted rates to be at 6.50% or higher by then, while one forecast a 25 basis points cut to 6.00%.

Median forecasts showed rates would remain at 6.25% at least until the end of the year. This puts the BSP in line with Asian peers who have already paused their tightening cycle. [KR/INT][ID/INT][IN/INT]

(Reporting and polling by Devayani Sathyan; Editing by Simon Cameron-Moore)

This story originally appeared on Investing

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