BSP may pause rate cuts if inflationary pressure persists


Mactan, Cebu — The Bangko Sentral ng Pilipinas (BSP) may keep borrowing costs steady if inflationary pressures continue and economic growth remains sluggish in the final quarter of the year, the central bank chief said.

"Our readings indicate that there’s still some inflationary pressure, and the economy remains somewhat weak, as shown in the latest quarterly figures. If that weakness isn’t recovered, it could influence our decision to pause," BSP Governor Eli M. Remolona Jr. said on the sidelines of the BSP-International Monetary Fund (IMF) Systematic Risk Dialogue in Cebu.

From July to September, the country's economic growth slowed to 5.2 percent, a significant decline from the second quarter's 6.4 percent growth.

On Nov. 20, the governor stated that keeping the key interest rate unchanged is a possibility. “A rate cut or a pause is possible, depending on the data,” he said.

Remolona noted that positive base effects on the November inflation could influence the Monetary Board's (MB) decision.

He emphasized that the primary concern is inflation exceeding the target range of two percent to four percent, but noted that it currently appears to remain within the range.

“There are base effects involved—though I can’t recall now if there are positive base effects for November. That will be a factor, along with the adjustments being worked on by [Francisco G. Dakila, Jr., BSP deputy governor for the monetary and economics sector],” said the BSP chief.

When asked about his inflation forecast, Remolona said that the central bank expects the November inflation rate to stay within the government's target band.

Remolona recently stated that the central bank might implement a rate cut in December or at the next meeting, emphasizing a gradual approach to easing monetary policy.

If the rate cut proceed next month of a possible 25 basis points (bps), the exit key rate for the year will be 5.75 percent, marking the third reduction of the policy rate since August for a total decrease of 75 bps.