Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla said a monetary policy rate cut is possible this year but that will depend on the exchange rate situation by that time, which could be around the third quarter. Medalla reiterated over the weekend that the Monetary Board can consider a rate cut which is possible by Aug. 17 when they could have the data of six consecutive negative inflation month-on-month, but they have to take into consideration the impact of reversing a tightening mode on the exchange rate. The fifth of this year's eight Monetary Board policy meetings is on Aug. 17. “If our policy rate is less than 100 to 125 basis points (bps) higher than the Fed’s (US Federal Reserve), we have to think of the implications on the peso-dollar exchange rate,” Medalla told Manila Bulletin. Exchange rate intervention and raising BSP policy rates are two primary monetary policy measures that the central bank has done to stabilize the peso-US dollar rates, currently at the P55 level. Medalla said the BSP policy rate should at least be 100 bps higher than the US interest rates to keep the exchange rate less volatile. Since the BSP uses a flexible and free-floating exchange rate policy, it remains market-determined. The BSP therefore does not target a peso level versus the US dollar nor do they announce forecasts. But as a consequence of a higher BSP rate though, it will help alleviate pressures off the peso which in turn, will curb inflationary impulses due to steep global commodity prices. As for inflation and a move to cut the benchmark rate, Medalla said this is doable  if month-on-month inflation rate will fall below 0.2 percent for six straight months. Last Friday, the government announced a 6.6 percent April consumer price index (CPI), lower than March’s 7.6 percent and February’s 8.6 percent. Inflation is still above-target of the government’s aim of two percent to four percent, but it has been decelerating since February after hitting a peak of 8.7 percent in January. “Month-on-month is negative,” said Medalla. “April CPI is actually lower than January. Seasonally adjusted, it is only 0.3 percent higher. So, average month-on-month inflation over the last three months is only 0.1 percent. Year-to-date, average seasonally adjusted month-on-month inflation is 0.34 percent,” he further explained. The BSP chief provided data that showed April inflation is lower than January based on seasonally-adjusted numbers of 120.9 for April versus 122.4 for January. With a 6.6 percent April CPI, the year-to-date average is now 7.9 percent. Meanwhile core inflation, which does not include volatile food and energy items to detect underlying demand-side price pressures, also dropped to 7.9 percent in April from eight percent in March. On a month-on-month seasonally adjusted basis, inflation remained nil in April, said the BSP. The three straight months of lower inflation is a good enough reason to pause the BSP’s rate increases on May 18. However a rate cut is another thing and this could only be considered on consistently low inflation that will last until July or August this year. Medalla has said that if April turns out to be another “very low” inflation month, then “that’s three good points in a row (and) we are in a position to pause.” Meanwhile, Medalla is more assured of the exchange rate stability. The peso was lounging at the P54-level for weeks but depreciated on April 12 to P55 after the BSP signalled a probable pause in its year-long tightening cycle. The impact of the BSP monetary tools – mainly the rate hikes -- utilized to reduce price pressures will allow a gradual lowering of the inflation rate until it reached the government target range by November or December this year. On a quarterly basis, the central bank forecasts inflation will average at 7.7 percent in the first six months of this year, 5.4 percent by the third quarter, and 3.8 percent in the last quarter of 2023. At the moment, inflation remains elevated because of the higher prices of food, utilities, and transport fares as well as a more pronounced second-round effects on rent and restaurants.