Bangko Sentral unlikely to hike rates – Remolona

By Niña Myka Pauline Arceo | The Manila Times
September 15, 2023

LAST month’s higher-than-expected inflation by itself is not enough reason to resume hiking key interest rates, Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. said on Thursday.

“[I]f that’s all the risk and there is no further supply shock beyond that uptick in August, then it won’t be necessary to hike the policy rate,” Remolona told reporters.

“It won’t justify an easing, and it won’t be necessary to raise the policy rate,” he added.

Inflation rose to 5.3 percent in August from 4.7 percent a month earlier, snapping a six-month downtrend. It fell within the BSP’s 4.8- to 5.8-percent forecast but topped an analyst consensus of 4.9 percent.

A rapid increase in food prices along with increased transportation costs were blamed for the acceleration. Rice inflation, in particular, rose to 8.7 percent from 4.2 percent in July.

Surging inflation prompted the BSP’s policymaking Monetary Board to raise key interest rates by a total of 425 basis points beginning May last year. The central bank’s policy rate as a result currently stands at a 16-year high of 6.25 percent.

A pause — since extended during the last two policy meetings — was ordered in May after inflation began easing from January’s 14-year high of 8.7 percent. Many analysts expect rates to be kept unchanged when monetary authorities again meet next Thursday, September 21.

“In deciding what to do with the policy rate, we’ve looked at whether we are comfortable with being within the target range,” Remolona said.

“So far, we’ve been hit by what we call the supply shocks … [that] are harmful to the poor, and these are food prices, energy prices, so that’s the main reason we have a price stability objective,” he added.

“We’re really, really committed to achieving that objective,” Remolona continued. “I think we should be within the target range by October if there are no further supply shocks.”

During its last meeting in August, the Monetary Board raised its forecast for 2023 inflation to 5.6 percent from 5.3 percent. Projections for next year and 2025 were also adjusted to 3.3 percent and 3.4 percent from 2.9 percent and 3.2 percent, respectively.

The forecasts will likely be revised anew next week but BSP officials still expect monthly inflation to return to the 2.0- to 4.0-percent target before the end of 2023.