BSP mulls over off-cycle rate hike

MANILA, Philippines — Bangko Sentral ng Pilipinas (BSP) Gov. Eli Remolona Jr. sees 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 interest 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: BSP seen delivering ‘measured’ rate hikes

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

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 BSP said inflation may average 6.3 percent this year and 4.3 percent in 2027.

The BSP said it was “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: PH to lean on interest rate hikes to arrest inflation

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