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Manila Bulletin devider Business devider Brace for longer tight policy rate

Brace for longer tight policy rate

Published Jan 23, 2024 08:05 am

Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona Jr. said the policy rate, currently at 6.5 percent, would stay “sufficiently tight for longer” given the evolving upside risks to inflation such as the impact of the Red Sea crisis and the domestic labor condition on price pressures.

Remolona also said that come Feb. 15, which is the first scheduled Monetary Board policy meeting for the year, there will be no rate cut, following his earlier signal that it will be unlikely to reduce the target reverse repurchase (RRP) rate while inflation is averaging above the target of two percent to four percent.

The BSP chief told reporters in an informal press chat that the BSP will maintain its hawkish stance “given our risk-adjusted forecast” of 4.2 percent for this year and the “numbers we are seeing” that would indicate that staying sufficiently tight for some time is the appropriate monetary policy stance, at the moment.

“I would say at this point it is not likely (we will cut) rate. I’m talking about on Feb 15,” said Remolona late Monday, Jan. 22.

Just over the weekend, he has said that while the data on inflation and other economic indicators are “looking good” and that “we like the trend so far” he is not encouraging further talk of rate cuts anytime soon.

He the country’s consumer price index (CPI) is moderating but it is too soon to discuss an easing of monetary policy stance.  

The BSP as of Dec. 14, 2023, have a risk-adjusted CPI forecast of 4.2 percent for 2024, but Remolona said supply shocks may derail that forecast including the imports of rice and the El Niño weather condition.

Remolona has already signaled to the market that they will consider an easing of monetary policy stance only when the CPI is firmly within the mid-range of the target or around three percent. At the end of 2023, the CPI averaged at six percent, still way above the target of two percent to four percent.

The BSP chief said that when the inflation rate has “really settled into this comfortable rate” of three percent, then the BSP will discuss an easing of policy stance after raising the key rate by a cumulative 450 basis points (bps) since May 2022.

Risk-adjusted inflation forecasts take into consideration events or factors that are expected to happen at some point in time. 

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