Next rate tweak rests on many factors–BSP


DESPITE the recent low inflation print, the Bangko Sentral ng Pilipinas (BSP) said this may not be enough reason to consider another pause or a rate cut in the next policy rate setting.

BSP Governor Eli M. Remolona Jr. told reporters late Wednesday that apart from inflation, the Monetary Board will also consider the country’s GDP growth rate as well as the next move of the US Federal Reserve.

Remolona stressed that the decision of the Federal Open Market Committee (FOMC) will be considered on the basis that it also provides data for the Monetary Board.

“You know, 5.4 [percent] is just one number so it’s not a trend, necessarily. So we’ll see. We’ll look at the data,” Remolona told reporters. “[Other factors?] well, output growth [and to a certain extent] we’ll look at what the FOMC does, because that’s data as well but we look at a lot of data.”

One important consideration in looking at the decisions of the FOMC, Remolona said, is the US Federal Reserve’s difference from the BSP.

“Yes, the data suggests that (extended pause) but you know that the BSP is an inflation-targeting central bank. That means it’s structurally hawkish when it comes to inflation,”Remolona said.

“So the (FOMC) is not an inflation-targeting committee which means they put not as large a weight on inflation as an inflation-targeting central bank like the Philippines,” he explained.

During the press briefing, BSP Deputy Governor Francisco Dakila Jr. reiterated that the original projection of the central bank is for inflation to hit below 4 percent by around October this year.

Asked if this would be a signal to cut rates, Remolona only said that this will be considered by the Monetary Board. He added that setting policy rates is not a one-time thing for the BSP.

Remolona said when the Monetary Board decides on setting rates, its not enough to consider just one rate but the path of the policy rate.

“We’ll do it one meeting at a time. But in doing it one meeting at a time, we’re also looking forward to what we might do down the road. We’re not looking at just one policy rate, we’re looking at a path of the policy rate. So it’s implicit on every decision we make,” Remolona explained.

Metrobank’s take

Meanwhile, in its economic bulletin, Metrobank said the recent slowdown in inflation to 5.4 percent in June provides enough support for a pause in the rate hikes.

This may also be a good start, said Metrobank, in considering rate cuts by the end of the year. The bank said inflation expectations are already on the downtrend.

“However, Metrobank Research noted that despite the recent decline in both headline and core inflation, elevated inflation may continue to persist, due to ongoing upside risks stemming from price constraints on key food commodities such as rice, the potential impact of the recently approved wage hike, and the imminent El Niño,” Metrobank said.

EL Niño was also considered one of the major upside risks to inflation in the next few months, according to the BSP and the National Economic and Development Authority (Neda).

The Philippine weather bureau, Pagasa, on Tuesday issued an advisory that El Niño’s impact will be most pronounced in the latter part of 2023 and will extend until the second quarter of next year (Full story:

Image credits: Michael Edwards |