Newly appointed Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona said a policy rate cut is possible once inflation is below four percent which the BSP forecasts will be in October this year.
In his first press conference as BSP chief, Remolona told reporters Wednesday night, July 5, that for now the BSP will keep reviewing and considering an extended pause for the rest of 2023 given a decelerating consumer price index (CPI).
The new BSP chief said that as an inflation-targeting central bank, it is “structurally hawkish when it comes to inflation.”
As for an extended pause, Remolona said the Monetary Board will study all relevant data one policy meeting at a time.
“In doing it one meeting at a time, we’re also looking forward to what we might do down the road. We’re not just looking at one policy rate, we’re looking at a path of the policy rate. It’s implicit in every decision we make,” he said.
The June CPI further slowed to 5.4 percent from 6.1 percent in May. This is the fifth time the inflation rate is on a downward path since it peaked at 8.7 percent in January this year.
“It is actually better than we expected,” said Remolona on the CPI trend.
Based on current data including CPI, output growth and the actions of the US Federal Open Market Committee, Remolona said a pause is an appropriate monetary policy stance for now.
However, he said June’s 5.4 percent turnout is just “one number. It’s not a trend. We’ll (have to) look at all data.”
When the CPI is firmly within the two percent to four percent government target, Remolona said they will consider a rate cut. “The Monetary Board will consider it,” he said.
With a lower June inflation, the CPI average year-to-date is now 7.2 percent. This was on point to the BSP’s forecast that inflation will be in the 7.2 percent level in the first half of 2023 before declining to 4.6 percent by the third quarter and three percent by the fourth quarter.
The central bank also thinks inflation will be firmly within the target range by the first quarter of 2024 due to negative base effects and expected decline in oil and non-oil prices.
From a peak of 8.7 percent in January, inflation has steadily declined to 8.6 percent in February, 7.6 percent in March, 6.6 percent in April, 6.1 percent in May and 5.4 percent in June.
The latest full year inflation forecast for 2023 is 5.4 percent and 2.9 percent for 2024.
Meanwhile, the Monetary Board has kept the 6.25 percent benchmark rate unchanged for the past two policy meetings in a row. The BSP has raised the key rate by a cumulative 425 basis points (bps).
There are only four Monetary Board policy meetings scheduled for this year. The next policy meeting is on Aug. 17.