Citi Philippines CEO Paul Favila
MANILA -The Philippines’ central bank is expected to begin lowering its policy rates only by next year, as risks to food inflation due to El Niño and the perceived impact of the planned legislated wage hike loom on the horizon, according to the local unit of American banking giant Citigroup.
Citi Philippines chief executive officer and country head Paul Favila on Monday said the Bangko Sentral ng Pilipinas (BSP) will likely take these risks into consideration and take a cautious policy stance for the rest of the year.
Headline inflation
“If we see headline inflation stay within a particular range, then they will start considering lowering interest rates,” Favila told reporters on the sidelines of a media forum organized by the company.
“The sooner that conditions allow the central bank to lower interest rates. I think that’s exactly what they will try to do. But I don’t expect that happening anytime soon. Probably early next year,” he added.
Last June 22, the Monetary Board (MB) of the BSP—its seven-person policy making body—kept its key policy rate at 6.25 percent, saying that the latest baseline projections continue to suggest a gradual return of inflation to the target range of 2 percent to 4 percent over the next two years.
READ: BSP keeps key rate unchanged at 6.25%
Policy meeting
This marked the second policy meeting in a row that the central bank’s overnight borrowing rate was unchanged after rising by a total of 4.25 percentage points throughout the past 13 months from a historic low of 2 percent.
The Philippines’ inflation rate had receded for five months in a row to 5.4 percent in June from 8.7 percent in January, bringing the average during the first six months of the year to 7.2 percent.
READ: BSP keeps key rate unchanged at 6.25%
Last week, BSP Governor Eli Remolona said it was still too early to cut interest rates, noting in an even earlier interview this month that they may consider it when the monthly inflation readout goes below 4 percent. INQ