Remolona wants to take ‘baby steps’
The Bangko Sentral ng Pilipinas (BSP) said on Tuesday it continues to be in a monetary easing cycle and is on track for taking “baby steps” of 25-basis points cut at a time.
BSP governor Eli Remolona said a rate cut is “on the table” when the policymaking Monetary Board meets on April 10 to decide on the next appropriate monetary action.
“We stay with baby steps, which means 25 basis points at a time. If things look much worse than we thought, or what you call a hard landing, it could be 50 basis points, or even more,” Remolona said.
“But as long as we’re more or less on track, it will be 25 (bps) at a time,” Remolona said during a press briefing organized by the Tuesday Club, a fellowship gathering of select members of media and government officials every Tuesday.
“We see ourselves still on the easing cycle. We are expecting to cut a few more times this year. By how much, we haven’t determined.”
Citing economic uncertainty over global trade policies, the policymaking Monetary Board in its February meeting decided to freeze its key rates like the BSP’s Target Reverse Repurchase (RRP) Rate at 5.75 percent. The interest rates on the overnight deposit and lending facilities were also kept at 5.25 percent and 6.25 percent, respectively.
Inflation on the downside
Inflation eased more than expected to 2.1 percent in February from 2.9 percent in January this year, due to milder increases in food and non-alcoholic beverage prices.
It was lower than the forecasts made by analysts and below the forecast range set by the BSP.
Remolona said that the risks to the inflation outlook continue to be broadly balanced for 2025 and 2026.
“We’ll look at the numbers. We did miss the inflation number on the low side, lower than the bottom of our range. If we’re going to miss it, that’s the way to miss it, right? So we’re happy about that miss. Our econometricians were a bit embarrassed, but overall, it’s okay. And then we’ll look at all the other numbers, and then we’ll decide (at the next meeting) on whether to ease further or not to ease,” Remolona said.
He said the outlook for inflation and growth continues to be a key factor in the setting of monetary policy.
“In deciding on the timing and magnitude of further reductions in the policy interest rate, the Monetary Board will remain data-dependent and continue to refine its assessment of the potential effects of global policy uncertainty and impact of the previous monetary policy easing,” Remolona said.
Uncertainty: Global concern
Remolona, who earlier attended a meeting with the Bank of International Settlements—considered the central bank of central banks—said the BSP is not the only one concerned over uncertainty in the global economy.
“They’re (also) concerned about uncertainty. That was kind of the number one term that was used in the meetings. So we’re all looking at it. We’re all trying to figure out what to do. The markets are trying to figure out what to do. So far, our measures of policy uncertainty have spiked. But the market measures of uncertainty have not spiked. So maybe the market is also trying to figure out in their pricing what it means,” Remolona said.
“There are still a lot of numbers to look at. Of course, we’re recalibrating our models to take uncertainty into account.”
Remolona said the policymaking Monetary Board looks at scenarios when deciding on the policy stance.
“There’s the baseline scenario, which is kind of saying we’ll cut by this (much) many times the rest of the year. Then we have a hawkish scenario, which means fewer cuts. And then there’s the dovish scenario, which means more cuts than the baseline. So we compare those three scenarios and how we see inflation evolving, and how we see growth evolving. So it’s a balancing act between inflation and growth. And so we have to weigh the different factors. We have what is called the Goldilocks rate, which is just right. Not too hot, not too cold,” Remolona said.
“(On) the policy rate, there’s a kind of cycle, you don’t want to lower it and then raise it the next time. You want to just keep going in baby steps. The markets are disrupted when you change the cycle. The markets don’t know what to do if you raise now, and then ease later, and then raise again. That just doesn’t work,” the BSP governor said.
The next monetary policy meeting is set for April 10, and the March inflation data will be released on April 5.
