MONETARY authorities will still likely start cutting key interest in August, Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. said on Thursday, as inflation is expected to have peaked in July.
“I think August 15 (the next Monetary Board policy meeting) is still a possibility. Of course, it will depend on the numbers,” he told reporters.
The central bank a day earlier said that consumer price growth could have hit 4.0-4.8 percent last month, possibly breaching the 2.0- to 4.0-percent target.
Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. Photo from BSP
The rise from 3.7 percent in June would have been driven by higher fuel, power and food prices, and the BSP said it would “continue to monitor developments affecting the outlook for inflation and growth in line with its data-dependent approach to monetary policy formulation.”
Remolona, meanwhile, said a breach was expected due to “positive base effects” but added that monetary authorities were now “less hawkish, which means we will still remain tight, but maybe less tight than before.”
He reiterated that a 25-basis-point cut was possible, to be followed by another later this year.
“Given the lower tariffs on rice, that will lead to more moderate inflation, significantly moderate inflation. So that’s a good thing that will help us ease monetary policy,” Remolona said.
President Ferdinand Marcos Jr. last month issued Executive Order 62 to formalize changes to the 2024-2028 tariff program. Among others, it slashed the tariff on rice imports to 15 percent from 35 percent.
The BSP’s benchmark rate currently stands at 6.5 percent, the highest since 2007, following 450 basis points of increases beginning in May 2022 when inflation started surging in the wake of Russia’s invasion of Ukraine.
During its last policy meeting, the Monetary Board said that the “balance of risks to the inflation outlook has shifted to the downside.”
It subsequently trimmed the risk-adjusted inflation forecasts for 2024 and 2025 to eased to 3.1 percent for both years from 3.8 percent and from 3.7 percent, respectively.
Bank of the Philippine Islands President and Chief Executive Officer Jose Teodoro Limcaoco, meanwhile, also said on Thursday that he expected the central bank to start easing policy next month.
“As early as August … [as] when you look at the macro fundamentals, inflation is clearly under control,” he told reporters.
The US Federal Reserve (Fed) has also signaled a possible cut in August, he added, which gives Remolona “every reason already” to start cutting rates.
Limcaoco also dismissed fears that cutting ahead of the Fed would further weaken the peso, which fell to P58:$1 in May after Remolona first flagged an August rate cut and continues to trade at that level.
The currency edged up 3 centavos to P58.333 against the dollar on Thursday.
“He’s (Remolona) been messaging a potential cut for the last two or three months and the currency has actually behaved,” the BPI chief said.
“If he actually does it, I don’t think the currency is going to react because everyone’s expecting.”
The BPI chief said that there might be two rate cuts this year, one in August and another after a couple of months, depending on how inflation pans out.
“It (rate cuts) will be good for the economy if they cut rates. It will be good for consumers. It will be good for [corporations]. They’ll start borrowing because many people expect rates will be coming down. And once they see it, then they’ll really step up and then it will spur investment.”
WITH A REPORT FROM EARL JOHN ALFARO
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