菲律宾央行（BSP）：菲律宾货币政策报告2024年2月

i

Foreword

Theprimaryobjectiveofmonetarypolicyistopromotealowandstablerateof

inflationconducivetoabalancedandsustainableeconomicgrowth.TheadoptioninJanuary2002oftheinflationtargetingframeworkformonetarypolicysought

tohelpfulfillthisobjective.

Oneofthekeyfeaturesofinflationtargetingisgreatertransparency,whichmeansgreaterdisclosureandcommunicationbytheBangkoSentralngPilipinas(BSP)ofitspolicyactionsanddecisions.TheMonetaryPolicyReportorMPRplaysa

primarypartintheBSP’stransparencymechanismsunderinflationtargeting.It

shareswithstakeholders,includingmarketcounterparties,thelatestassessmentofthestanceofmonetarypolicybasedonananalysisofeconomicandfinancial

prospects.Thebroadaimistocontributetomakingmonetarypolicyaccessibletothepublic,whothroughthereportmaybetterunderstandandmonitortheBSP’s

commitmenttotheinflationtarget,promotetheanchoringofinflationexpectations,andencourageinformeddebateonmonetarypolicyissues.

TheMPR,whichreplacedthequarterlyInflationReport,istheflagshipBSP

publicationonmonetarypolicythatprovidesthepublicadetailedviewoftheBSP’sforecastsandguidanceonthelikelydirectionofmonetarypolicyoverthenexttwoyears.ThereportconveystothepublictheoverallthinkingbehindtheBSP’sdecisionsonmonetarypolicy.Thegreaterpartofthereportisdevotedtoforward-lookingdiscussionsoninflationandthekeymacroeconomicvariablesthataffectinflationaswellastherisksanduncertaintysurroundingtheBSP’sinflationforecasts.

Undertheinflationtargetingframework,thegovernment’sannualheadline

inflationtargethasbeenretainedat3.0percent±1.0percentagepoint(ppt)for

2024–2028bytheDevelopmentBudgetCoordinationCommittee.Theinflation

targetrangecontinuestobeanappropriatequantitativerepresentationofthe

medium-termgoalofpricestabilitythatisalignedwiththePhilippines’current

structureofeconomyandoutlookofmacroeconomicconditionsoverthenextfewyears.

TheMonetaryBoardapprovedthisMonetaryPolicyReportatitsmeetingon

14February2024.

ELIM.REMOLONA,JR.

Governor

ii

TheMonetaryPolicyoftheBangkoSentralngPilipinas

TheBSPMandate

TheBSP’smainresponsibilityistoformulateandimplementpolicyintheareasofmoney,bankingandcredit,withtheprimaryobjectiveofmaintainingstablepricesconducivetoabalancedandsustainableeconomicgrowthandemploymentin

thePhilippines.TheBSPalsoaimstopromoteandpreservemonetarystabilityandtheconvertibilityofthenationalcurrency.

MonetaryPolicyInstruments

TheBSP’sprimarymonetarypolicyinstrumentistheovernightreverserepurchase(RRP)facility.

1

Otherinstrumentstoimplementthedesiredmonetarypolicystance

toachievetheinflationtargetinclude(a)increasing/decreasingthereserve

requirement(RR);(b)conductingauctionsforthetermdepositfacility(TDF)andBSPSecuritiesFacility;(c)adjustingtherediscountrateonloansextendedto

bankinginstitutionsonashort-termbasisagainsteligiblecollateralofbanks’

borrowers;and(d)outrightsales/purchasesoftheBSP’sholdingsofgovernmentsecurities.

PolicyTarget

TheBSP’stargetformonetarypolicyistheaverageannualConsumerPriceIndex(CPI)(orheadline)inflationrate,whichiscompiledandreleasedtothepublicbythePhilippineStatisticsAuthority(PSA).Thepolicytargetissetbythe

DevelopmentBudgetCoordinationCommittee(DBCC)

2

inconsultationwiththeBSP.Theinflationtargetfor2024-2028is3.0percent±1.0ppt.

3

BSP’sExplanationClauses

Explanationclausesareaprespecifiedsetofacceptablecircumstancesunder

whichaninflation-targetingcentralbankmayfailtoachieveitsinflationtarget.

Theseclausesreflectthefactthattherearelimitstotheeffectivenessofmonetarypolicyandthatdeviationsfromtheinflationtargetmaysometimesoccurbecauseoffactorsbeyondthecontrolofthecentralbank.Undertheinflationtargeting

frameworkoftheBSP,theseexemptionsincludeinflationpressuresarisingfrom:

(a)volatilityinthepricesofagriculturalproducts;(b)naturalcalamitiesoreventsthataffectamajorpartoftheeconomy;(c)volatilityinthepricesofoilproducts;and(d)significantgovernmentpolicychangesthatdirectlyaffectpricessuchaschangesinthetaxstructure,incentives,andsubsidies.

1On8September2023,theovernightRRPfacilitywastransformedintoavariable-rateauctionformatwiththepolicyrateoftheBSPrenamedtotargetRRPrate.

2TheDBCC,createdunderExecutiveOrderNo.232dated14May1970,isaninter-agencycommitteetaskedprimarilytoformulatetheNationalGovernment'sfiscalprogram.ItiscomposedoftheOfficeofthePresident(OP),

DepartmentofBudgetandManagement(DBM),NationalEconomicandDevelopmentAuthority(NEDA),andtheDepartmentofFinance(DOF).TheBSPattendstheCommitteemeetingsasaresourceagency.

3DuringtheDBCCmeetingon15December2023,theDBCC,inconsultationwiththeBSP,decidedtoretaintheinflationtargetof3.0percent±1.0pptfor2024andsetthesameinflationtargetfor2025–2028.

iii

TheMonetaryBoard

ThepowersandfunctionsoftheBSP,suchastheconductofmonetarypolicyandsupervisionoverthebankingsystem,areexercisedbyitsMonetaryBoard(MB),

whichhassevenmembersappointedbythePresidentofthePhilippines.TheMBholdseightmonetarypolicymeetingsinayeartoreviewanddecideonmonetarypolicy.

ChairmanandGovernor

EliM.Remolona,Jr.

Members

RalphG.Recto

BenjaminE.Diokno

V.BruceJ.Tolentino

AnitaLindaR.Aquino

RomeoL.Bernardo

RosaliaV.DeLeon

TheAdvisoryCommittee

TheAdvisoryCommitteewasestablishedasanintegralpartoftheinstitutional

settingforinflationtargeting.Itistaskedtodeliberate,discuss,andmake

recommendationsonmonetarypolicytotheMB.LiketheMB,theCommitteemaymeeteighttimesayearbutcanhaveadditionalregularmeetingswhennecessary.

Chairman

EliM.Remolona,Jr.

Governor

Members

FranciscoG.Dakila,Jr.

DeputyGovernor

MonetaryandEconomicsSector

ChuchiG.Fonacier

DeputyGovernor

FinancialSupervisionSector

EduardoG.Bobier

DeputyGovernor

CorporateServicesSector

EdnaC.Villa

SeniorAssistantGovernorFinancialMarkets

IluminadaT.Sicat

SeniorAssistantGovernorMonetaryPolicySub-Sector

JohnnyNoeE.Ravalo

SeniorAssistantGovernor

OfficeofSystemicRiskManagement

iv

TechnicalStaff

Head

DennisD.Lapid

Officer-in-Charge

DepartmentofEconomicResearch

Members

LoreleiS.Fernandez

SeniorDirector

FinancialMarkets

RedentorPaoloM.AlegreJr.

SeniorDirector

DepartmentofEconomicStatistics

Director

OfficeofSystemicRiskManagement

MariaCynthiaM.Sison

Director

SupervisoryPolicyandResearchDepartment

TheaJosefinaNataliaW.Santos

Director

CapitalMarketsandTrustSupervisionDepartment

LaraRominaE.Ganapin

Director

MonetaryPolicyResearchGroup

DennisM.Bautista

Director

EconomicandFinancialForecastingGroup

SolElizahT.Roxas

BankOfficerVI

CorporateServicesSector

TechnicalSupportStaffMembers

MonetaryPolicyResearchGroup

EconomicandFinancialForecastingGroup

FinancialMarketsResearchGroup

RealandExternalSectorsResearchGroup

v

2024scheduleofMBmonetarypolicymeetingsand

publicationoftheMBHighlightsand

theMonetaryPolicyReport

2024

MonetaryBoard(MB)meeting

PublicationofMBhighlights

Publicationofthe

MonetaryPolicyReport(MPR)

January

11(Thursday)

(14December2023

MBmeeting)

February

15(Thursday)(MBMeetingno.1)

16(Friday)

(MPRI,February2024)

March

14(Thursday)

(15February2024

MBmeeting)

April

4(Thursday)(MBMeetingno.2)

May

16(Thursday)(MBMeetingno.3)

2(Thursday)(4April2024MBmeeting)

17(Friday)(MPRII,May2024)

June

27(Thursday)(MBMeetingno.4)

13(Thursday)(16May2024

MBmeeting)

July

25(Thursday)(27June2024

MBmeeting)

August

15(Thursday)(MBMeetingno.5)

16(Friday)

(MPRIII,August2024)

September

12(Thursday)

(15August2024

MBmeeting)

October

17(Thursday)(MBMeetingno.6)

November

14(Thursday)

(17October2023

MBmeeting)

December

19(Thursday)(MBMeetingno.7)

20(Friday)

(MPRIV,December2024)

vi

TableofContents

MonetaryPolicySummary 1

I.EconomicOutlook 3

1.BaselineForecasts 3

2.KeyForecastAssumptions 4

3.RiskstotheOutlook 8

Boxarticleno.1:Monetarypolicydevelopments 13

II.CurrentDevelopments 14

Overviewofcurrentdevelopments 14

1.PriceConditions 16

2.InflationExpectations 18

3.DemandConditions 20

4.SupplyConditions 25

Boxarticleno.2:Second-roundeffectofsupplyshocksoninflation 28

Boxarticleno.3:ConstructingthePhilippineSupplyPressureIndex 32

5.LaborMarketConditions 35

6.MonetaryOperations 36

7.FinancialConditions 37

8.ExternalDevelopments 43

MonetaryPolicyReport–February2024|1

MonetaryPolicySummary

Atitsmonetarypolicymeetingon14February2024,theBSPdecidedtokeep

thetargetovernightreverserepurchase(RRP)rateunchangedat

6.50percent.Thus,theinterestratesontheovernightdepositandlendingfacilitieswerelikewisemaintainedat6percentand7percent,respectively.

Thelatestbaselineforecastsshowaslightlylowerpath.Baselineinflationisseentosettleatanaverageof3.6percentfor2024,and3.2percentfor2025.

Theforecastpathisdrivenbythelower-than-expectedinflationoutturns,peso

appreciation,andlowerglobalcrudeoilprices,partlyoffsetbyhigherassumptionsforglobalnon-oilprices,strongerdomesticgrowthoutlook,impactofElNiño

weatherconditions,andminimumwageadjustmentsinareasoutsideNCR.

Theriskstotheinflationoutlookhaverecededbutcontinuetoleantowardtheupside.Theupsideriskstotheinflationoutlookarelinkedmainlytohighertransportcharges,increasedelectricityrates,higheroilanddomesticfoodprices,andtheadditionalimpactonfoodpricesofastrongElNiñoepisode.Meanwhile,theimplementationofgovernmentmeasurestomitigatetheimpactofElNiñoweatherconditionsistheprimarydownsiderisktotheoutlook.

Theestimatedimpactofupsiderisksontheinflationoutlookoutweighsthepossibleeffectofdownsiderisks.Nevertheless,therisk-adjustedforecastof

3.9percentfor2024isnowwithintheBSP’sinflationtargetrange.Meanwhile,

inflationcouldsettleat3.5percentin2025.Therisk-adjustedforecastislowerfor

2024whichcanbeattributedtothelowerbaselineforecastandthedeclineintheestimatedrisksfortheyear.Thelowerestimatedimpactofrisksfor2024

emanatesfrom(1)theremovaloftheimpactofhighertransportfaresfromthe

jeepneymodernization;(2)lowerprobabilityoffarehikesfortraditionaljeepneys;

(3)lowerimpactofhigherglobaloilprices;and(4)theremovaloftheriskfromthenon-extensionofExecutiveOrder(E.O.)No.10.Meanwhile,therisk-adjusted

forecastfor2025isrelativelysteadyduemainlytotheshiftintheassumedimplementationofhigherelectricityrates.

Inflationexpectationsaremorefirmlyanchoredwithinthetargetrange.TheresultsoftheBSP’ssurveyofexternalforecastersforFebruary2024showed

unchangedmeaninflationforecastfor2024(at3.9percent)aswellasfor2026(at3.4percent)relativetotheforecastsintheJanuary2024surveyround.Bycontrast,themeaninflationforecastfor2025roseto3.5percent(from3.4percent).

Domesticeconomicactivityisseentoremainintactoverthemediumterm.

TheprojectedGDPgrowthpathissupportedbytheimprovedglobalgrowthoutlookanddeclineinglobalcrudeoilprices,temperedinpartbythelaggedimpactofthepolicyrateadjustments.WhiletheprojectedimpactoftheBSP’spolicyrateadjustmentsislikelytopeakin2024,growthinthemediumtermcouldalsobesupportedbystructuralreformmeasuresthatcouldenhance

investmentclimateaswellaseconomicsentimentinthecountry.

Theeconomyisprojectedtooperateslightlybelowitspotential.TheoutputgapisestimatedtobebroadlyneutralinQ42023,andwillturnslightlynegativeovertherestofthepolicyhorizon.Theoverallbalanceofdemandandsupply

conditions,ascapturedbytheoutputgap,indicatespossibledisinflationarypressuresoverthepolicyhorizon.

MonetaryPolicyReport–February2024|2

Inconsiderationofprevailingrisks,theBSPdeemsitappropriatetokeep

monetarypolicysettingsunchangedintheneartermevenasinflation

conditionscontinuetoimprove.Thedeclineinheadlineinflation,aswellasthesustaineddowntrendincoreinflationsinceQ22023,suggeststhatinflation

momentummaycontinuetodecelerateinthecomingmonthsintheabsenceofadditionalsupplyshocks.Inthemeantime,non-monetarymeasurestoaddresslingeringsupply-sidepressuresonpricesandsustainthedisinflationprocess.

Atthesametime,theBSPremainsreadytoadjustitsmonetarypolicy

settingsasnecessaryinkeepingwithitsprimarymandatetosafeguardpricestability.

MonetaryPolicyReport–February2024|3

I.EconomicOutlook

1.BaselineForecasts

Thelatestbaselineforecastsshowaslightlylowerpathcomparedtothe

previousMonetaryPolicyReport(MPR).Inflationisprojectedtoaverageat

3.6percentfor2024,slightlylowerby0.1percentagepoint(ppt).Thedownwardrevisionisdrivenbylower-than-expectedinflationoutturns,pesoappreciation,andlowerglobalcrudeoilprices,partlyoffsetbyhigherassumptionsforglobalnon-oilprices,strongerdomesticgrowthoutlook,impactofElNiñoweather

conditions,andminimumwageadjustmentsinareasoutsideNCR(AONCR).Meanwhile,theinflationforecastfor2025isbroadlyunchangedat3.2percent.

Inflationisprojectedtoaveragewithinthetargetrangeoverthepolicy

horizon.WhileinflationislikelytosettlewithinthetargetinQ12024,inflation

couldrisetemporarilyabovethetargetfortheperiodApriltoJuly2024dueto

possiblepricepressuresfromlowerdomesticsupplyofriceandcornaswellas

positivebaseeffectsduetotheslowdowninfoodandenergyinflationduringthesameperiodin2023.Subsequently,inflationisprojectedtoreturntothetargetrangefortherestoftheyear.

Table1.BSPAverageBaselineInflationProjections

inpercent

November2023MPRa

February2024MPRb

2024

3.7

3.6

2025

3.2

3.2

Source:BSPestimates

aBaselineforecastsfrom16November2023monetarypolicymeetingbBaselineforecastsfrom14February2024monetarypolicymeeting

Domesticeconomicactivitywillremainintactoverthemediumterm,but

growthcouldsettlebelowtheDBCC’stargetof6.5-7.5percentfor2024and6.5-8.0percentfor2025.

4

TheprojectedGDPgrowthpathissupportedbytheimprovedglobalgrowthoutlookanddeclineinglobalcrudeoilprices,temperedinpartbythelaggedimpactofthepolicyrateadjustments.

WhiletheprojectedimpactoftheBSP’spolicyrateadjustmentsislikelytopeakin2024,growthinthemediumtermcouldalsobesupportedbystructuralreform

measuresthatcouldenhanceinvestmentclimateaswellaseconomicsentimentinthecountry.

5

ThesemeasuresincludetherecentratificationoftheRegional

ComprehensiveTradePartnership(RCEP)Agreement,whichisseentosupportgreatermarketaccessforgoodsandservices,reducedtradebarriers,and

improvedexportcompetitivenessfromsimplifiedandharmonizedrules.

ComplementarytoRCEP’sratificationistherecentimplementationofkey

economicliberalizationlawssuchastheamendmentstotheRetailTrade

LiberalizationAct(RTLA),ForeignInvestmentsAct(FIA),PublicServiceAct(PSA),andtheBuild-Operate-Transfer(BOT)Law.

4Basedontheonthe186thDevelopmentBudgetCoordinationCommittee(DBCC)Meetingon

15December2023.

5ThesemeasureshavenotbeenincorporatedinthebaselineGDPgrowthforecasts.

MonetaryPolicyReport–February2024|4

Nonetheless,theeconomyisprojectedtooperateslightlybelowitspotential.

TheoutputgapisestimatedtobeslightlynegativeinQ42023withtheeconomyprojectedtooperateslightlybelowitspotentialoverthepolicyhorizon.The

overallbalanceofdemandandsupplyconditions,ascapturedbytheoutputgap

orthedifferencebetweenactualandpotentialoutput,indicatespossibledisinflationarypressuresoverthepolicyhorizon.

EstimatesfromtheBSP’sPolicyAnalysisModelforthePhilippines(PAMPh)

6

indicatethattheoutputgapisestimatedtobeslightlynegativein2024and2025,astheimpactofpreviouspolicyinterestrateadjustmentstakesholdonthe

economy.Aprojectedslowdowninglobalgrowthowinginparttotightmonetaryconditionsacrosscountriescouldlikewisedampenaggregatedemand.

Nonetheless,theoutputgapcouldbesupportedbyhigherconsumptionowingtohigherwagesandtheincreasedvalueofremittancesamidapesodepreciation.

Meanwhile,potentialoutputisexpectedtobesustainedbyimprovementsin

labormarketconditionsandcontinuedinvestmentgrowth.Productivitygrowthisalsoseentocontinueowinglargelytogenerallyrobusteconomicactivityand

robustinfrastructurespending.Moreover,keystructuralreforms,suchas

CorporateRecoveryandTaxIncentivesforEnterprises(CREATE),RCEP,andPSAcouldshoreupinvestmentsandbusinessactivity,whichcouldinturnhelp

acceleratethecountry’spotentialoutput.

TheexchangerateisexpectedtosettlewithintheDBCC’sassumptionsof

₱55.00-58.00/US$1for2024and2025.

7

Theprojectedexchangeratefor2024and2025appreciatedfrompreviousroundduemainlytothewiderrealinterestratedifferentialarisingfromtheexpectedlargerinterestratereductionbytheUS

FederalReservein2024.

2.KeyForecastAssumptions

ExternalFactors

WorldGDPGrowth.Theglobaleconomyisseentogrowbelowhistoricalaverageoverthepolicyhorizon.Whilethelatestassumptionsfor2024and2025arehighercomparedtothepreviousroundonaccountofgreater-than-expectedresilienceintheUnitedStates,aswellastherenewedfiscalsupportinChina,globalgrowthisseentoremainbelowthepre-pandemichistoricalaverageof3.6percentfrom

2000-2019owingmainlytoelevatedcentralbankpolicyratestofightinflation

andawithdrawaloffiscalsupportamidhighdebtweighingoneconomicactivity.

InitsJanuary2024WorldEconomicOutlook(WEO)Update,theInternationalMonetaryFund(IMF)projectsglobalgrowthfor2024at3.1percent,higherby0.2pptfromtheOctober2023WEO.Meanwhile,theforecastfor2025is

unchangedat3.2percent.TheIMFnotedthatthelikelihoodofahardlandinghasrecededandthattheriskstotheglobaloutlookarebroadlybalancedcomparedtotheassessmentintheOctober2023WEO.

6ThePAMPhisamonetarypolicymodelforasmallopeneconomylikethePhilippines.Itisasemi-structuralgapmodelbasedonNewKeynesianfoundationswithageneralequilibriumframeworkandforward-lookingfeaturesthatallowfortheassessmentofthedynamicpathofkey

macroeconomicvariablesinatheoreticallyconsistentmanner.TheBSPiscurrentlyundergoingamulti-yeartechnicalassistance(TA)missionwiththeIMF’sInstituteforCapacityDevelopmenttofurtherimprovethestructuralfeaturesandforecastingperformanceofthePAMPhtoserveastheBSP’sworkhorsemodelformedium-termforecastingandpolicyanalysis.

7Basedontheonthe186thDevelopmentBudgetCoordinationCommittee(DBCC)Meetingon

15December2023.

MonetaryPolicyReport–February2024|5

Table2.WorldGDPGrowth

inpercent

November2023MPR

February2024MPR

2024

2.9

3.1

2025

3.2

3.2

Source:WEOUpdate(IMF,January2024),WEO(IMF,October2023)

DubaiCrudeOilPrices.Globalcrudeoilpricesaresetconsistentwithoilfuturesmarketdataandthelatestassessmentbyinternationalenergyagenciesonthe

outlookfortheglobaloilmarket.Developmentsinthedomesticoilmarketinturnareassumedtobroadlyfollowthetrendintheworldoilmarket.TheDubaicrudeoilassumptionsinthelatestroundarebasedontheaveragefuturespathfrom

23Januaryto5February2024.

Table3.DubaiCrudeOilPriceAssumptions

average,inUS$perbarrel

November2023MPR

February2024MPR

2024

82.3

77.5

2025

78.0

73.5

Source:Bloomberg,BSPEstimates

Assumptionsforglobalcrudeoilpricesarelowercomparedtotheprevious

round.Thelatestfuturespathshowscrudeoilpricesdeclininginthenexttwo

yearsasproductiongrowthisexpectedtoslightlyoutpacedemandincrease,

allowinginventoriestobuildupmodestlyandcontributetodownwardpressuresoncrudeoilprices.Thisreflectedprojectionsoflowerglobalfuelconsumption

growthoverthenexttwoyears,withtheUSEnergyInformationAgency(USEIA)citingtheslowdownofoildemandinChinaduetoeasingGDPexpansion,shifttoelectriccars,andtheendtothepost-pandemicrecovery-relatedgrowth.The

increaseinglobaloilproductionisalsoseentoslowdownasOPEC+continuesitspolicyofproductionrestraint.Nonetheless,globalproductionisstillanticipatedtoexceedconsumptionbymid-2025,leadingtoanincreaseinpetroleuminventoriesfromnon-OPECcountries.

Todeterminetheimpactontheinflationforecastsfor2024and2025ofvarious

outturnsforworldoilprices,scenariosrangingfromUS$70-US$130perbarrelweresimulated.Thescenariosassumethatoilpricesaresustainedattheselevels

startinginMarch2024.InflationisseentobreachtheupperendoftargetrangeifDubaicrudeoilpriceaveragesaboveUS$90perbarrelin2024andaroundUS$95perbarrelin2025.Itshouldbenotedthattheseoilpricescenariosconsideredonlythedirecteffectsanddonotincorporateanypotentialsecond-roundeffectson

transportfares,foodprices,andwageincreasesamongothers.

MonetaryPolicyReport–February2024|6

Table4.ImpactofAlternativeDubaiCrudeOilPriceScenariosonInflation

inpercentagepoints

Year20242025

BaselineInflationForecast(inUS$)

3.6

3.2

70

3.4

3.0

75

3.5

3.2

80

3.7

3.5

85

3.8

3.7

90

4.0

3.9

95

4.1

4.1

100

4.2

4.3

105

4.4

4.5

110

4.5

4.7

115

4.6

4.9

120

4.7

5.0

Source:BSPestimates

WorldNon-OilPrices.Thelatestassumptionsforglobalnon-oilcommodities

showacontinueddeclineinpricesoverthepolicyhorizon,butataslowerrate

comparedtopreviousroundfor2024,basedontheIMF’sJanuary2024WEO

Update.Globalnon-fuelpriceinflationisseentodeclineby0.9percentin2024and0.4percentin2025comparedtothepreviousassumptionof2.7percentand0.1percentdecreasefor2024and2025,respectively.Adverserisksfrom

commoditypricespikesamidgeopoliticalandweathershocksremain.The

conflictinGazaandIsraelcouldescalatefurther,whilecontinuedattacksintheRedSeaandtheongoingwarinUkrainecouldleadtoresurgenceofsupply-sideconstraints.Containershippingcostshavealreadyincreasedsharplyandthe

situationintheMiddleEastremainsvolatile.Moreextremeweathershocks,

includingfloodsanddrought,togetherwiththeElNiñophenomenon,couldalsocausespikesinfoodprices.

Table5.WorldNon-OilPriceInflation

inpercent

November2023MPR

February2024MPR

2024

-2.6

-0.9

2025

-0.1

-0.4

Source:WEO(IMF,November2023),WEOUpdate(IMF,July2023)

FederalFundsRate.Thelatestfederalfundsrateassumptions,basedonthefuturespricesasof5February2024,arelowerfor2024and2025relativetothepreviousround.Thecurrentfuturespathisconsistentwiththemarket

expectationsoftheUSFederalReservekeepingthefederalfundsratetarget

unchangeduntilApril2024.Marketsarepricingina100-bpeasingin2024startinginMaywithanadditional75-bpratecutin2025.Bycontrast,theFederalOpen

MarketCommittee's(FOMC’s)dotplotinitsDecember2023meetingindicateda75-bpcutin2024followedbya100-bpcutin2025.

MonetaryPolicyReport–February2024|7

Table6.FederalFundsRate

end-period,inpercent

November2023MPR

February2024MPR

2024

4.6

4.3

2025

4.1

3.6

Source:Bloomberg

DomesticFactors

RRPRateandReserveRequirementRatio(RRR).TheforecastpathassumesunchangedinterestrateoverthepolicyhorizonwiththetargetRRPrateat

6.50percent.Meanwhile,theRRRwasmaintainedat9.5percentuntilend-2025.

Wages.Thebaselineforecastisconsistentwiththe₱40.00minimumwagehikesforNCRinJuly2023aswellasthe8.7percentaveragewageincreasefornon-

agriculturalworkersinAONCR.Furthermore,furtherincreasesof₱28.00inAugust2024and₱29.00inSeptember2025areassumed.Thisisequivalenttoanannualincreaseof4.6percentforbothyears,inlinewithhistoricalwageincreases.

FiscalSector.Thebaselineinflationforecastsareconsistentwiththe

government’sfiscaldeficitassumptionof5.1percentfor2024and4.1percentfor

2025basedonthemedium-termfiscalprogramoftheDBCCasof

15December2023.

AlcoholicDrinks.Thebaselineforecastsreflecttheimpactofannualadjustmentsinthepricesofalcoholicbeverages(0.7percentoftheCPIbasket)asmandatedinRepublicAct(R.A.)no.11467.Higherexcisetaxesforfermentedliquor,wine,and

distilledspiritswillbeimplementedonastaggeredbasisfrom2020to2024andshallincreaseby6.0percenteveryyearfrom2025onwards.

TobaccoProducts.ThePresidentsignedR.A.no.11346,increasingfurthertheexcisetaxontobaccoproducts(0.9percentoftheCPIbasket)tofundthe

UniversalHealthcareAct.Underthelaw,thetaxperpackofcigaretteswillbe

raisedonastaggeredbasisto₱60.00perpackin2023andsubjecttoa5.0percentannualindexationonwards.

Table7.ExciseTax

Year

Cigarettes(₱perpack)

Fermented

Liquor

(₱perliter)

Wine

(₱perliter)

DistilledSpirits

ExciseTax(₱perliter)

AdValorem

Tax(%)

2024

2025

5%

43.0

63.1

6%indexation

66.0

22%22%

Source:R.A.nos.11346and11467

WaterRates.TheMetropolitanWaterworksandSewerageSystem(MWSS)

approvedtheratehikerequestsofManilaWaterCompanyandMayniladWater

Servicesfor2023-2026.Thewaterraterebasingprocessisconductedeveryfive

yearstosettheratesforwaterandsewerageservicesforwaterconcessionairestorecoveritsoperating,capital