BSP unlikely to further tighten rates - Remolona

The Philippine central bank’s return to a tightening cycle is not likely, as inflation is expected to fall within the government’s target this year.

“I think it's unlikely that we will tighten some more. But we'll see what the data says,” Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. told reporters in a press briefing on Wednesday.

In its February policy meeting, the BSP’s Monetary Board decided to keep key policy rates unchanged for the third time as it downgraded its inflation outlook for 2024.

Monetary authorities kept the target reverse repurchase rate (at 6.5%), the overnight deposit rate (at 6.0%), and the overnight lending facility rate (at 7.0%) at their highest levels in 16 years since they delivered an off-cycle rate hike in October 2023, ending a six-month policy tightening pause.

The BSP has raised key policy rates by 450 basis points since May 2022 in a bid to tame inflation, which averaged 6.0% in 2023, higher than the target range of 2.0% to 4.0%.

While tightening is unlikely, Remolona said that “I can't say that we're going to ease soon.”

The central bank chief had earlier expressed an ambiguous stance concerning trimming interest rates.

“We seem to be on our way, but there's not enough data to assure us that we will settle comfortably within our target range of between 2-4%,” Remolona said.

The BSP had lowered its inflation forecast for the year to 3.9% from 4.2% in December.

“The main thing is still whether there are upside risks, supply side shocks, whether there's going to be more of them, and whether they will cause second round effects,” Remolona said.

“Our models say it's going to be 3.9% for the year,” he said.

Inflation snapped its four-month deceleration trend in February, clocking in at 3.4% from 2.8% in January as the main food staple rice continued its price acceleration streak, hitting a 15-year high inflation rate of 23.7%.

Monetary policy or interest rates are among the tools used by central banks to stabilize inflation by controlling the money supply by raising borrowing costs.

For example, the BSP sets the overnight reverse repurchase rate or the key policy rate, under which the central bank borrows from banks to maintain price stability. This, in turn, impacts the country’s money supply as it shifts money from banks into the central bank.

A tighter money supply could make consumers and businesses spend less, therefore reducing economic activity or lowering demand and eventually lowering prices. —VBL, GMA Integrated News