BSP Gov. Eli Remolana Jr. đź“·bangkero.com.ph
The Bangko Sentral ng Pilipinas (BSP) on Thursday maintained its key policy rate for the fifth time to mitigate supply-side inflation pressures in the country.
In a press briefing, BSP Governor Eli Remolona Jr. said the central bank’s Monetary Board maintained the target rates for overnight lending facilities at 7.0 percent, overnight deposits at 6.0 percent, and reverse repurchase (RRP) rates at 6.5 percent.
This is the highest since the benchmark rate was maintained at 7.5 percent in May 2007 for 17 years.
This coincides with the revision of the risk-adjusted inflation outlook, which was previously projected to be 4.0% in April, to 3.8 percent in April due to rising transportation costs, food prices, electricity rates, and worldwide oil prices.
The BSP controls inflation by raising or lowering the main policy rate, which in turn influences the interest rates that banks charge businesses and consumers.
Theoretically, raising interest rates or keeping them high can deter consumers from taking out loans and making purchases, which would impede economic expansion and price increases.
It may take months for important policy rate choices to have an impact on the economy and inflation. Interest rate changes take time to filter down to consumers, businesses, and the banking system.
“The Monetary Board deems it appropriate to ensure sufficiently tight monetary policy settings until inflation settles firmly within the target range. A restrictive policy stance will also help keep inflation expectations anchored amid a possible buildup in upside risks to future inflation,” Remolona said.
“The Monetary Board reiterates its support for the national government’s non-monetary measures to address persistent supply-side pressures on food prices and to prevent further second-round effects,” he added.
BSP may cut rates by Q3, Q4
Remolona also took on a more dovish tilt after Finance Secretary Ralph Recto mentioned that the BSP could begin rate cuts by the fourth quarter.
In the same briefing, Remolona said that the MB is now “less hawkish” and that the central bank may cut rates in August.
“We are actually somewhat less hawkish than before, which means we could ease or cut rates in the third quarter or fourth quarter of this year, so the second half of this year,” Remolona said.
In a commentary, ING Bank said it is holding on to its previous expectation that the BSP can only cut policy rates “as soon as the Fed (does).”
“The governor shared that we could see possible rate cuts as early as August after CPI inflation surprised on the downside for April,” ING wrote.
“Given ING’s house call that the Federal Reserve will cut policy rates by September, we expect the BSP to begin its easing cycle at its October meeting should inflation continue to trend lower. The PHP held on to gains after the BSP kept rates at a 17-year high,” it added. (TCSP)
