The Philippine central bank signalled on Thursday that it might cut interest rates as early as August, fuelled by recent inflation and growth figures.

This announcement came after the bank decided to keep its key policy rate unchanged for the fifth consecutive meeting.

The Bangko Sentral ng Pilipinas (BSP) said its policy-making monetary board voted to hold the target reverse repurchase rate unchanged at 6.50%, as forecast by a total of 23 economists in a poll carried out by Reuters.

“We are somewhat less hawkish than before,” said BSP governor, Eli Remolona, going on to add that rates may likely be cut in August, before major central banks, including the Federal Reserve.

The central bank last reduced interest rates back in November 2020.

On Thursday, the central bank revised its risk-adjusted inflation forecast for this year, lowering it to 3.8% from the previous 4.0%. However, it slightly increased its projection for next year to 3.7% from 3.5%, citing that risks to the outlook remain skewed to the upside, Reuters reports.

Both forecasts fell within the central bank's target range of 2.0%-4.0%, indicating an improved inflation outlook after consumer prices surged to 6.0% last year.

Furthermore, annual inflation accelerated for the third consecutive month in April to 3.8%, bringing the average inflation rate for the first four months to 3.4%, which was within the central bank's target range.

According to BSP deputy governor, Francisco Dakila, improving inflation should “be supportive of consumption numbers going forward.”

Thursday's decision followed a series of data indicating that inflation has dampened consumer spending, limiting first-quarter economic growth to 5.7%. While this growth was below forecasts, it was stronger than the previous quarter's 5.5% expansion.

“Based on the latest GDP data, the expected path for domestic output growth over the medium term remains largely intact, even as recent indicators point to continued moderation under tight financial conditions,” Remolona stated.

The government’s growth target is set at 6.0% - 7.0% for 2024.