THERE is no need to wait too long to ease key interest rates, as that could lead to an economic downturn, the Philippine central bank chief said.
“When I said that we have to be cautious or we have to be careful, that basically means we have to not wait too long for easing because the longer we wait for easing the more likely it is that we will cause a loss of output which we don’t want,” Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. told reporters during the EJAP-SMC Economic Forum 2024 on Monday.
The BSP chief said that they are on track in lowering key interest rates next month as the June inflation print “is better than expected, so there’s a bit more scope for easing, possibly in August.”
Consumer price growth slowed to 3.7 percent in June, snapping the four consecutive months of increase.
While the central bank still anticipates inflation to likely breach the target this month, Remolona said they are keen to easing the key rates even if inflation rises anew.
“What we’re trying to do is to strike a balance between supply and demand so that we end up with stable prices,” Remolona said.
“And at this point, in the last mile. We’re almost there, but we have to be more careful than before. Because there’s a risk we might want to overdo it,” he added.
The BSP chief said that “there’s a risk we might cause unnecessary loss of output, and we want to minimize that risk” by embarking on the rate cuts as early as the third quarter.”
He reiterated that US Federal Reserves’ actions are factored in their rate cut outlook, but added that “the Fed is not the most important data among the numbers that we look at.”
“It affects our exchange rate, as you saw, the exchange rate affects inflation, so that’s factored in, but it’s not a decisive factor,” he added. “I think we’re on track, I would say, towards reducing rates.”
The BSP’s benchmark rate currently stands at 6.5 percent, the highest since 2007, following 450 basis points of increases beginning May 2022 when inflation started surging in the wake of Russia’s invasion of Ukraine.
Remolona has hinted at two rate cuts this year totaling 50 basis points and starting in the third quarter. The Monetary Board’s August meeting is the only one scheduled for the period.
This will be followed by two more in the fourth quarter, on October 17 and December 19.
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