‘BSP has room to keep policy settings steady’

MANILA, Philippines — Monetary authorities have room to keep the country’s monetary policy settings steady this month, even if inflation breaches the four percent upper target in April, according to Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr.

“There’s still leeway (to maintain interest rates if inflation hits four percent in April),” Remolona told reporters on the sidelines of the 2024 Government-Owned or Controlled Corporations’ Day in Pasay. “April inflation will come out (today). So if it’s much higher, we will postpone the policy easing,” he said.

Remolona, however, said it would not be surprising if inflation reached four percent in April due to base effects.

The BSP expects headline inflation to settle within the range of 3.5 to 4.3 percent in April, from a three-month high of 3.7 percent in March.

Inflation averaged 3.3 percent in the first quarter after picking up gradually from a three-year low of 2.8 percent in January. The Philippine Statistics Authority is scheduled to release the April consumer price index (CPI) data today.

“We’re still hawkish,” Remolona said. “We’ll see. But one number won’t make a big difference. We need to look at a few months.”

The BSP chief said inflation is expected to ease back to the target in the second half, but the Monetary Board needs to see an inflation trend wherein headline CPI is settling comfortably at around three percent before considering rate cuts.

“If we’ll ease, we’ll cut by 25 basis points, but we’ll see,” Remolona said, adding that if the BSP cuts by more than 25 basis points, it would mean that the economy is in a recession. “But now, we don’t see (a recession) coming.

The central bank’s next policy meeting is on May 16, shortly after the release of April inflation figures and the first quarter economic growth data on May 9.

Meanwhile, Remolona said he now expects the US Federal Reserve to cut borrowing costs in September due to a slower US unemployment number in April.

“The (US) unemployment number is weaker, so it’s more likely that the Fed would ease sooner than expected,” he said.

However, this would have a minimal effect on the Philippine central bank, as the BSP will focus more on domestic data.

Remolona also said there are no “strong grounds” for the BSP to intervene in the foreign exchange market, as there is no “stress” yet in the peso’s movement against the dollar.

The peso has been above the 57 to $1 rate for three weeks straight, reaching an 18-month low last week amid broad dollar strength.

“We’d like to intervene significantly when there’s stress. The movement of the peso is not stressed so far because we know it’s a strong dollar. Other currencies (in the region) also weakened,” Remolona said.

He added that the BSP is intervening in small amounts to maintain order in the market.