Ralph Recto —DEPARTMENT OF FINANCE
Finance Secretary Ralph Recto said an early rate cut is “more so” needed now as the government seeks to raise cash at cheaper cost and as fast as it can to pay maturing debts, including the pandemic-era borrowings.
In an interview with the Inquirer, Recto said the market was likely ready whether a rate cut at the Aug. 15 policy meeting of the Monetary Board (MB) would happen or not.
This, after Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. on Tuesday said a rate cut this month was now “little less likely” after inflation in July had turned out “slightly worse than expected”, although he did not rule out the possibility of an off-cycle easing.
For Recto, who represents the Cabinet of President Marcos in the seven-member MB, there is a need for a rate reduction “more so now,” arguing that the Philippines can afford to ease early amid signals of a September rate cut from the US Federal Reserve.
”Regardless [of whether] the policy rate has been adjusted or not, the market is pricing it in already,” the finance chief said.
”I will defer to him (Remolona). But of course, being in the government, I want lower rates,” he added.
Above-target inflation
Data released this week showed inflation had quickened to 4.4 percent in July, faster than 3.7 percent recorded in June and the highest in nine months. While the latest reading fell within the 4 to 4.8 percent forecast range of the BSP for July, it marked the first time this year that inflation had overshot the central bank’s 2- to 4-percent target band.
Although he had already anticipated a breach of the inflation target because of base effects, Remolona said the July price growth and the impact of data distortions were “slightly worse than expected.”
That said, the possibility of rates staying higher for a longer period could make it more expensive for the Marcos administration to refinance its old debts. Budget data showed the government would spend P876.7 billion for debt payments next year, including interest expenses for pandemic borrowings that are falling due soon.
Recto said even concessional borrowings extended by multilateral agencies like World Bank had become more costly amid a high-interest rate environment. Moving forward, Recto said the government would continue to tap the commercial debt market at the right time to help pay its old liabilities.
”The idea is to borrow at the cheapest rates. But essentially, they (Bureau of the Treasury) know what they’re doing. And they know when to time the market,” he added.