The Bangko Sentral ng Pilipinas (BSP) has leeway to keep policy settings unchanged this month even if the April inflation reading comes in at 4 percent, its governor said on Monday.
The central bank remains hawkish, but a trend of 3 percent inflation in the coming months would give it room to cut rates, BSP Governor Eli Remolona told reporters.
The central bank’s next policy meeting is on May 16, following the release of April inflation figures today and first quarter economic output data on Thursday.
“We are still hawkish because inflation is still high,” Remolona said, adding the base case for policy was a 25 basis points rate cut in the fourth quarter or first quarter in 2025.
Remolona said there were no strong grounds yet for foreign exchange intervention, after the Philippine peso traded near 18-month lows last week because of the dollar’s strength.
“We were active in small amounts to maintain orderly markets,” he said, noting the peso is not yet “stressed.”
The BSP’s Target Reverse Repurchase (RRP) Rate remains at 6.50 percent. The interest rates on the overnight deposit and lending facilities also remain at 6.0 percent and 7.0 percent, respectively.
During last month’s meeting, Remolona said the risk-adjusted inflation forecast for 2024 has risen to 4.0 percent from 3.9 percent in the previous meeting. For 2025, the risk-adjusted inflation forecast is unchanged at 3.5 percent.
“The risks to the inflation outlook continue to lean toward the upside. Possible further price pressures are linked mainly to higher transport charges, elevated food prices, higher electricity rates, and global oil prices. Potential minimum wage adjustments could also give rise to second-round effects,” Remolona said.
“My sense is that the upside risks may have become worse so that would make us somewhat more hawkish than before. So if I would say if we were relatively dovish we might reduce rates in the third quarter and that would be no more than 25 basis points but now we’re feeling a bit more hawkish than before so I would say we’re not gonna by the third quarter. We may do it down the road. We’re contemplating easing, we’re not contemplating any further tightening,” Remolona added.
“I think the data will have to be really bad for us to consider a further rate hike because we’re already tight at the moment, this tightness, we think, is sufficient to bring inflation rates down,” Remolona stressed.
Remolona said the Monetary Board noted that while upside risks to inflation have raised inflation expectations, these expectations have remained broadly anchored.
“Given these considerations, the Monetary Board deems it appropriate to maintain the BSP’s tight monetary policy settings. The BSP also continues to support the National Government’s policies and programs to address supply-side pressures on the prices of key food commodities. The BSP remains ready to adjust its monetary policy settings as necessary, in keeping with its primary mandate to safeguard price stability,” Remolona said.
April’s meeting was originally scheduled on April 4, but the Monetary Board wanted to wait for the release of the March consumer price index data which came out on April 5th, together with other data.
The Philippines’ headline inflation or overall inflation increased to 3.7 percent in March 2024 from 3.4 percent in February 2024. This brings the national average inflation from January to March at 3.3 percent.
Annual inflation was likely to come in between 3.5 percent to 4.3 percent in April, the central bank said last week. – Jimmy Calapati, Reuters
