Recto: BSP likely to keep rate at 6.5%

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) would likely keep its ultra-tight monetary policy settings unchanged today as inflation is expected to remain “sticky,” Finance Secretary Ralph Recto said.

Recto, who represents the Cabinet of President Marcos in the seven-member Monetary Board (MB), told reporters that it was not yet time to slash the key rate from a 17-year high of 6.5 percent.

“Well, number one, we’ll take a look at the data. But so far, the way I see it unless something changes between now and then, I think [the policy rate will be] more or less steady,” Recto said.

“But moving forward, I expect rates to go lower. Maybe not this Monetary Board meeting, but it’s possible that [by] the end of the year, there could be a possible reduction in rates,” he added.

An Inquirer poll of nine analysts also expects the MB to keep its tight grip on rates when they meet today.

This, after inflation quickened for the third month in April to 3.8 percent, from 3.7 percent in March, on the back of high food prices amid the El Niño onslaught and expensive transport costs. But the latest reading came out as a surprise after it fell below market expectations that had pegged April price growth at a faster 4.1 percent. The figure also settled close to the lower limit of the BSP’s forecast range of 3.5 to 4.3 percent for last month.

READ: April inflation surprises at 3.8%

For analysts, this is enough reason for the BSP to maintain its tight monetary policy settings to avoid upsetting inflation expectations. Despite the April spike, inflation settled within the central bank’s 2 to 4 percent target range for the fifth consecutive month.

Some market watchers also believe the BSP won’t cut rates ahead of the US Federal Reserve to avoid unnecessary pressure on the peso, which has been trading at 17-month lows against a strong dollar.

For Recto, the BSP’s decision will “all depend on inflation.”

“We all go back to inflation. And the expectations for inflation this year are lower than expected, than the BSP. But it will still be sticky. I think it will be a little higher next year also. So let’s see,” he said.

RTL tweaks

Philippine Statistics Authority (PSA)  data showed rice, a staple food of Filipino households, was still expensive after posting price gains of 23.9 percent in April, albeit a tad slower than 24.4 percent previously. That pushed up food inflation to 6 percent last month from 5.6 percent previously, responsible for 75.7 percent of the uptick in the headline rate.

The House of Representatives on Tuesday approved on second reading the proposed amendments to the Rice Tariffication Law (RTL) that would allow the National Food Authority (NFA) to sell rice at subsidized prices during emergencies, including shortages.

READ: House to begin plenary debates on Rice Tariff Law amendments this week

In the same interview with reporters, Recto said he’s “more or less” in favor of the proposed tweaks, believing that the debt-ridden grains agency—which has a “buy high, sell low” program to stabilize rice supply—would be fiscally fine despite the planned amendments.

“So far, I think the RTL is working. OK. Maybe we can tweak it a bit,” the finance chief said. “We don’t expect that the NFA debts will balloon … we will make sure that the debts of NFA do not balloon.”