‘More room to stay tight’

HIGHER-THAN-EXPECTED second-quarter growth has given monetary authorities space to keep policy settings unchanged on Thursday, Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. said.

“[The] 6.3 [percent growth], that’s good… there’s more room to stay tight,” he told reporters at the sidelines of a Senate hearing on Tuesday.

The BSP’s policymaking Monetary Board will meet on August 15 to discuss whether to keep key interest rates at an over 17-year high or finally start easing.

Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. Photo from BSP

Remolona, who had previously pushed the likelihood of an August rate cut, last week said that an easing was now a “little bit less likely” after inflation turned out to be “slightly worse than expected” in July.

The 4.4-percent result was within the BSP’s forecast range but exceeded market expectations.

The BSP chief qualified that a rate cut could still push through if second-quarter gross domestic product (GDP) turned out to be “unexpectedly weak,” which turned out to be not the case.

Some analysts have said that the Monetary Board could again keep interest rates unchanged for a seventh straight meeting on Thursday, but most continue to expect a 25-basis-point cut.

Inflation, those in the rate cut camp said, will likely start falling anew, and economic growth needs to be supported given underlying weaknesses, including the government’s ability to maintain its current spending pace and tepid household consumption.

Remolona said that monetary authorities would also look at other GDP components before deciding on whether or not to start cutting.

“[A]ll of our models take into account different components of GDP,” he told reporters, adding that “it seems like the risk of a hard landing is decreasing.”

“In the US, that risk is relatively high. But I also don’t see a hard landing happening in the US.”

The direction is to eventually ease monetary policy when inflation has been tamed, Remolona said, adding the BSP does not have a timeline yet for a rate cut.

With inflation under control, the benchmark rate could be cut by a total of 25 to 50 basis points in the next two quarters or by the end of 2024, Finance Secretary Ralph Recto told the same Senate hearing.

Recto sits at the Monetary Board, which is led by Remolona.
WITH A REPORT FROM REUTERS