Incheon, South Korea–The International Monetary Fund (IMF) said the Bangko Sentral ng Pilipinas (BSP) should not reduce interest rates or pause rate increases until core inflation slows.
On the sidelines of the IMF press briefing here, IMF Asia and Pacific Department Director Krishna Srinivasan said given that inflation remains elevated across the region, central banks, including the BSP “should stay the course” and keep monetary policy tight.
On Thursday, the United States Federal Open Market Committee (FOMC) again raised interest rates to 5.25 percent or by 25 basis points (bps). This, Srinivasan said, demonstrates the determination of the United States Federal Reserve to attain its 2-percent target.
“The Philippines is one country where they’ve tightened interest rates quite a bit by about 400 bps so they have [been] tightening and they have been trying to get inflation under control and the last few readings have come out well,” Srinivasan told the BusinessMirror on Thursday.
“But the important point, as in most of Asia, is that getting inflation under control is very important. So central banks have to stay the course to ensure that inflation comes back (down) not (only for) one or two months but comes back durably,” he added.
Asia and Pacific Department Regional Studies Division Chief Jay Peiris added that core inflation has also been elevated in the Philippines. In April, core inflation increased further to 8 percent bringing year-to-date inflation to 7.7 percent.
“Commodity prices are coming down, food and fuel [prices] are coming down so [that is] something to consider but I think what we are saying is we [should] focus on core inflation now. Core inflation remains high across the world, including in the Philippines so the key is, until we see core inflation coming down durably, we should [keep monetary policy] tight,” Peiris told this newspaper.
In an interview with BusinessMirror here on Wednesday, BSP Governor Felipe M. Medalla said he has made his position clear regarding the rate hikes. Should the inflation data be positive on a month-on-month basis, the BSP may pause increases in interest rates in its next meeting slated for May 18.
Medalla said inflation has been slowing as a result of the arrival of the country’s food imports. The timing of the imports were identified as one of, if not, the biggest causes of the uptick in commodity prices.
“I have already made my view very clear, which is that if we have one more good month-on-month inflation, it’s time to pause because we already have two very good months,” Medalla said. “In other words, the imports are beginning to work.”
The BSP, in its month-ahead forecast, expects April inflation to be slower due to the decline in electricity prices and select food items.
BSP said April inflation may have averaged 6.3 to 7.1 percent, lower than the 7.6-percent inflation recorded in March 2023.
If the low end of the target is achieved, this will be the same rate in August 2022 and the lowest since June 2022 when inflation was at 6.1 percent.
If the high end of the forecast is attained, this will mark the sixth consecutive month that inflation is above 7 percent.
However, the BSP said, upward pressures still remain. These include higher domestic petroleum prices, higher rice and meat prices, and the peso depreciation.
Image credits: Samuel Corum/Bloomberg