Too early for rate cut talk, says Remolona

Eli Remolona PHOTO FROM BSP.GOV.PH

MANILA  -It is still too early to put interest rate cuts on the table as upside pressures on prices remain even if inflation is on a downtrend, according to Bangko Sentral ng Pilipinas  Governor Eli Remolona.

In an interview with Bloomberg TV while in Canada during his first overseas trip with the Marcos administration’s economic team, Remolona said the central bank was leaning more toward a continued pause to see whether aggressive tightening over the past year has made its way through the Philippine economy.

Earlier this month, before joining the Marcos team’s North American sortie, the new BSP chief told reporters they may consider policy rate cuts when the monthly inflation readout goes below 4 percent.

Target range

The growth in prices of goods and services that households commonly purchase has eased for five months in a row from 8.7 percent in January to 5.4 percent in June.

Remolona said this was expected to sink below the upper end of the BSP’s target range of 2 percent to 4 percent by the fourth quarter this year.

“Our [forecasting] model shows that we will hit the target range by [fourth] quarter and we might actually overshoot on the low side, go below 2 percent in the first quarter of next year [and then hopefully inflation will] settle within the target range,” he said.

But for now, Remolona said the BSP’s Monetary Board was not sure if they had done enough to bring down inflation, even after aggressively raising the policy rate by 4.25 percentage points to 6.25 percent from a historic low of 2 percent.

READ: BSP seen holding key policy rate steady at 6.25%

Reductions

He added that inflation going below 4 percent was not enough to consider a shift to rate reductions.

“We may be well into the target range before considering anything like a rate cut,” Remolona said. “I think it is premature to talk about a rate cut, because the economy is still very strong and inflation is still above our target range.”

The BSP chief and MB chair added that they remain concerned about upside risks— factors that are pushing prices upward—such as the threat of El Niño on food prices as well as more regional regulators raising minimum wages.

READ: Severe El Niño to drive local food prices up

Last week, the latest update from the American agency Climate Prediction lent more certainty to the persistence of upward pressure on food prices in the Philippines. INQ

READ: Marcos’ economic team wary of El Niño impact on inflation