Possible surprise rate move to cool inflation – BSP chief

MANILA, Philippines — Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. said there’s a risk that the central bank may already be “behind the curve” despite its early tightening moves to choke off war-driven inflation, adding that policymakers are “considering” an off-cycle rate hike.

In an interview with One News TV on Friday, Remolona said the May inflation data due June 5 would be a key input for the Monetary Board’s next policy decision, scheduled for June 18.

“We’re considering it,” he said when asked about the possibility of a rate hike outside the regular policy cycle.

READ: PH to lean on interest rate hikes to arrest inflation

“It’s a toss-up whether we do an off-cycle or we just wait for the regular meeting, which is not that far away anyway,” he added.

Already, consumer prices rose 7.2 percent from a year earlier in April, the fastest pace in three years, as higher energy costs tied to the Middle East conflict quickly spilled over to other household essentials.

The April surge marked the second straight month inflation breached the central bank’s 2 percent to 4 percent target range. In response, the Philippine central bank raised its key policy rate by a quarter point to 4.5 percent at its April 23 meeting amid a “deteriorating” inflation outlook.

The central bank said inflation may average 6.3 percent this year and 4.3 percent in 2027. Policymakers said they were “committed to fulfilling its primary mandate of slow inflation and will take necessary actions to ensure inflation returns to its 3-percent target within a reasonable time.”

READ: Philippine inflation soared to 3-year high of 7.2% in April

On the continued weakness of the peso, Remolona said that while the depreciation could fuel inflation, it could also boost Philippine exports and help narrow the country’s trade deficit.

“Our exports do need help because we’re facing a current account deficit,” he said. “So, we can’t allow this kind of deficit to persist forever. And a weaker peso helps narrow the gap. But we’re not trying to seek a level for the peso.”

In a note to clients, Bank of America Global Research said the country’s current account deficit could widen to 4.1 percent of gross domestic product this year amid higher global oil prices.

“The Philippines’ dollar reserves also slipped 8 percent from recent highs, which implies a thinning cushion for the peso, which is treading new lows,” the bank added. /atm