Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona Jr. said Friday, Dec. 15, the day after he announced a year-end policy rate of 6.5 percent, that he does not see the Monetary Board reducing the key rate as yet, despite three months of slowing inflation.
Remolona said that he is also comfortable where the peso-US dollar exchange rate is now, at the mid-P55 level and breaching the P56 once in November and at least once this month.
“I think that the data are not so convincing yet about when it’s a good time to start easing. For now we’re hawkish for the time being,” he told CNBC Asia on Friday.
As for inflation, the baseline consumer price index (CPI) is still above-target at 6.2 percent as of end-November versus the two percent to four percent target. The BSP expects inflation to hit six percent at the end of the year, based on its latest risk-adjusted forecast.
“The trend for inflation looks good, but we’re not convinced that the trend will hold so we need more data (that) we will be within target by 2024,” said Remolona.
And despite slowing inflation, he said “three data points is not a trend for us.”
“But the other factors (that) leave us unconvinced are basically the upside risks. The risk of further supply shocks … (and since 2022) the kind of supply shocks that we get have been large and frequent so that expectations have been influenced by these shocks (and some lead to) second-round affects,” he added.
For now, the BSP with its tightening bias have been “trying to limit the spillover effects of (external) supply shocks,” said Remolona.
As for the peso, the BSP chief said he is “somewhat comfortable” at the current level. On Friday, the peso closed stronger at P55.655.
“We’re more concerned when there are sharp movements but gradual movements that we saw since October last year, they’re less of a concern. We don’t focus anymore on the differential between our policy rate and the FOMC (Federal Open Market Committee) policy rate. The peso seems to move more because of either the differential forward guidance between the emerging markets and FOMC, and the levels of uncertainty,” said Remolona.
On Thursday, during the BSP’s last Monetary Board policy meeting for 2023, it did not change the 6.5 percent target reverse repurchase (RRP) rate or the policy rate that it has held since Oct. 26 when it acted on a 25 basis points (bps) rate hike.
Remolona said “previous adjustments” have worked their way through the economy “as can be seen from the declining path for core inflation.”
The BSP has revised its risk-adjusted full-year inflation forecast to six percent for 2023 from the Nov. 16 projection of 6.1 percent. For 2024, the risk-adjusted forecast was also lower at 4.2 percent from 4.4 percent previously. The BSP retained the 3.4 percent risk-adjusted inflation forecast for 2025.
Remolona said he prefers the risk-adjusted inflation forecasts because these numbers take into consideration events or factors that are expected to happen at some point in time. Meanwhile, baseline estimates are based on events that has already transpired.