MANILA (UPDATED) — The Bangko Sentral ng Pilipinas on Thursday kept the key policy rate at 6.25 percent as inflation continues to decelerate.

"At its monetary policy meeting today, the Monetary Board decided to keep the interest rate on the BSP’s overnight reverse repurchase facility at 6.25 percent," BSP Governor Felipe Medalla said in a briefing.

Inflation eased for the 4th straight month in May to 6.1 percent after hitting a 14-year high of 8.7 percent in January. However, inflation remains above the government target of 2 to 4 percent.

"The BSP's latest baseline projections continue to suggest a gradual return of inflation to the target band of 2 to 4 percent over the policy horizon," Medalla said.

Medalla said the BSP also lowered its inflation forecast to 5.4 percent in 2023 from its initial estimate of 5.5 percent. For 2024, the inflation forecast was slightly raised to 2.9 percent from 2.8 percent, the BSP said.

Upside risks, however, remain due to the potential impact of weather conditions on key food items, Medalla said. While domestic growth is expected to remain intact, it is also seen to moderate reflecting the previous policy rate adjustments and weak global growth prospects, the BSP said.

"Given these considerations, the Monetary Board deems it appropriate to maintain current monetary policy settings to allow the BSP to further assess how inflation and domestic demand have responded to tighter monetary conditions," the central bank said.

When asked if a rate cut is possible within the year, Medalla said in his "personal" view, he would like to see inflation fall below 4 percent for at least 2 months before considering cutting the policy rate.

The US Federal Reserve also paused its interest rate hike last June 17.

Earlier this month, the BSP announced 250-basis points cut to the reserve requirement ratio (RRR) for universal and commercial banks and non-bank financial institutions with quasi-banking functions effective June 30.

The RRR for digital banks was cut by 200 bps, and thrift's banks, rural banks and cooperative banks by 100 bps, it said.

It would bring the RRR of universal and commercial banks and non-bank financial institutions to 9.5 percent, digital banks to 6 percent, thrift banks to 2 percent and rural and cooperative banks to 1 percent, it added.

But the BSP also clarified that the lower reserve requirements "do not constitute any shift in the monetary policy setting."

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- with reports from Jessica Fenol, ABS-CBN News

• BSP keeps benchmark interest rate at 6.25 percent as inflation slows
• Inflation eases for 4th straight month to 6.1 percent in May
• BSP to cut reserve requirement for banks by 250 basis points