The central bank’s Monetary Board, which remains hawkish, is expected to either hold the benchmark rate unchanged at 6.5 percent on Dec. 14, or raise it by a minimum 25 basis points (bps).
With just the two choices, Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona Jr. said any discussion, even a hint of it, of an easing is off the table because BSP’s monetary policy will stay sufficiently tight for as long as inflation expectations and inflation-related risks are tilted on the upside.
“We could consider a pause or consider a hike. We have to assess the situation. I think it’s premature to say that we will start to ease,” he told reporters.
Remolona said the economy is still strong with a projected robust growth, however the BSP will have to continue to balance the direction of policy stance and the growth trajectory.
“We don’t want to make any unnecessary tightening. We want to make just enough tightening so that we get within the target range, and expectations remain anchored to our target. I am still hawkish,” he added. “Hawkish means we could either pause or we could hike on Dec. 14.”
Remolona said that before they could start thinking about a rate cut, they would “want to be sure we stay comfortably within the target range and then when we’re comfortable about that, then we can start to think loosening (policy rate).”
The headline inflation dropped to 4.1 percent year-on-year in November from 4.9 percent in October and was within the BSP’s forecast range of four percent to 4.8 percent for the month. Year-to-date, the average inflation stands at 6.2 percent, still above the government’s average inflation target range of two percent to four percent for the year.
While there are no more significant data or economic indicators that BSP is watching out for before the Dec. 14 Monetary Board policy meeting, Remolona is not keen on categorically stating that they will pause next week.
The market mostly expect the BSP to pause on Dec. 14 following the lower inflation rate in November.
The BSP chief echoed economists in saying that the December inflation could be lower than 4.1 percent, barring any unexpected supply shocks that could put more pressure on prices.
But based on data, the BSP could opt for an unchanged overnight target reverse repurchase (RRP) rate of 6.5 percent next week.
“The data that’s important that many people don’t realize, is the data on expectations,” said Remolona.
He added, “we’re a country prone to supply shocks and normally you think supply shocks will dissipate so we don’t have to do anything. But actually, supply shocks often lead to expectations and if they’re large enough, if they are frequent enough, then it will lead to expectation of higher inflation and that leads to second-round effects. that’s what we worry about.”
The BSP is closely monitoring inflation expectations. “We’re trying to keep expectations anchored and that’s the way we hope to mitigate the second-round effects,” said Remolona.
To curb inflation which has stayed above the target range for more than 20 months, the BSP has raised the key rate by a cumulative 450 bps since May 2022.