Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. said that the interest rate cut in August is “somewhat more likely” after the Monetary Board kept its key rate steady for the sixth consecutive meeting.
During its policy meeting on Thursday, June 27, the MB kept its target reverse repurchase (RRP) or key rate unchanged at 6.5 percent amid the shifting balance of risks to inflation which is now more on the downside for 2024.
Remolona said that the central bank plans to reduce the current 6.5 percent policy rate by 50 basis points (bps) this year, beginning with a 25 bps cut in the upcoming meeting on August 15.
“Last time I said we’re still hawkish but less so. We’re basically the same position (but) somewhat more dovish,” Remolona said.
In central bank terms, “dovish” refers to a stance where interest rates are lowered to stimulate economic growth.
A “hawkish” monetary policy means that central banks would raise interest rates to address or prevent high inflation.
Remolona said the risks to the inflation outlook for both 2024 and 2025 are now tilted more toward the downside, primarily due to the effects of reduced import tariffs on rice following Executive Order 62.
However, the Central Bank chief acknowledged that uncertainties remain, particularly from higher prices of non-rice food items, transportation costs, and electricity rates, which continue to present potential upward pressures on inflation.
“Inflation is moving closer to the midpoint of the 2-4 percent target range. The risk-adjusted inflation forecasts have eased to 3.1 percent for both 2024 and 2025 from 3.8 percent and from 3.7 percent, respectively. Based on the BSP’s latest survey of market forecasters, inflation expectations remain well-anchored,” Remolona said.
“If we follow the course where we think we are, that would mean 25 bps in the third quarter and then 25 (bps) in the fourth quarter,” Remolona added. (TCSP)
