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Tuesday, December 12, 2023

October Inflation crucial to next move on rates

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INFLATION in October may ease but will stay on an elevated path, a development that will weigh heavily on the Monetary Board’s deliberations on monetary policy next month.

Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona Jr. recently told reporters that given this, raising policy rates by 25 basis points (bps) or even pausing its monetary tightening may be considered for November.

Only “really bad news about inflation” would prompt the Monetary Board to raise interest rates by 50-basis points (bps) next month.

“We’re actually expecting inflation to go down. But not as much as we used to expect. So the whole path is elevated. The trajectory is similar, kaya lang mataas na [but it’s already high],” Remolona said.

“I’m not even sure 25 [bps] would be justified so there’s a good chance we won’t hike. There’s a good chance we’ll pause. There’s a chance we might hike but 50 is a bit of a stretch,” he also said.

Remolona stressed that the Monetary Board will decide based on existing data. This was also the reason they decided to deliver only a 25-bps rate hike for the off-cycle meeting last Thursday.

The BSP on Thursday hiked its key policy interest rates by 25 basis points to 6.5 percent to arrest the increase in the prices of goods and services.

The Monetary Board, the BSP’s highest policy-making body, decided to raise the target reverse repurchase (RRR) rate by 25 basis points effective on October 27.

With the decision, the interest rates on the overnight deposit and lending facilities will be set at 6.0 percent and 7.0 percent, respectively, according to the BSP.

“[We did not deliver a 50-bps rate hike during the off-cycle] kasi hindi pa kami sigurado. May mga dadating pa na data.  So medyo ano kami, medyo conscious sa data eh. [because we remain uncertain. Some data will still be coming in; we are quite conscious of the data],” Remolona said.

Last week, Remolona said the BSP is “prepared” for a “follow-through” monetary policy action if necessary “to bring inflation back to a target-consistent path” in keeping with the BSP’s price stability mandate.

Nonetheless, Remolona noted that the impact of weaker-than-expected global economic recovery and the state’s measures to mitigate the negative impacts of El Niño would help temper “inflationary impulses.”

He also disclosed that recent domestic indicators point to “dissipating” pent-up demand in the near-term. Remolona revealed that the BSP does not see the country’s inflation print returning to its target band of 2 percent to 4 percent this fourth quarter.

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