BSP: Policy easing possible in Q3

By Anna Leah Gonzales

May 16, 2024, 7:44 pm

<p>BSP Governor Eli Remolona Jr. (PNA file photo) </p>

BSP Governor Eli Remolona Jr. (PNA file photo) 

MANILA – The Bangko Sentral ng Pilipinas (BSP) will likely ease policy rates starting August this year.

"We are actually somewhat less hawkish than before, which means we could ease or cut rates Q3 (third quarter) or Q4 (fourth quarter) this year, so the second half of this year," BSP Governor Eli Remolona Jr. said in a briefing on Thursday.

The Monetary Board is scheduled to hold a meeting in August.

"Yes. Possibly by August this year," Remolona said when asked about the timeline of the possible easing.

"As you know, there was a good number in April, 3.8 percent [inflation]. That was mainly driven by rice inflation. But also, 3.8 percent was better than expected. Actually, it's better than it looks because that included some positive base effects. It's actually better, and then there were other factors for good news in terms inflation," he added.

The Monetary Board of the BSP on Thursday kept policy rates steady for the fifth consecutive meeting.

The BSP's target reverse repurchase rate was retained at 6.50 percent, while the interest rates on the overnight deposit and lending facilities will also remain at 6 percent and 7 percent, respectively.

"The BSP's latest forecasts indicate that inflation would settle close to the upper end of the [2 to 4 percent] target range," Remolona said.

In a separate interview with reporters in Makati City on Thursday, Remolona said the BSP might cut rates twice in the second half of the year for a total of 50 basis points.

BSP deputy governor Francisco Dakila Jr. said the BSP's latest baseline forecast was adjusted downward to 3.5 percent from the previous 3.8 percent for 2024; while the projection for 2025 went up to 3.3 percent from 3.2 percent.

The risk-adjusted inflation forecast for 2024 was also adjusted to 3.8 percent from the 4 percent in the previous meeting.

For 2025, the risk-adjusted inflation forecast rose to 3.7 percent from 3.5 percent.

Dakila said risk factors that were incorporated into the assessment of the forecast include higher transport charges, food prices, electricity rates, and global oil prices.

Dakila said inflation may temporarily accelerate in the coming months but will return within the target in the latter part of the year.

"That will still happen. It could be again because of positive base effects. We're looking particularly the period May until July of this year. So, we just monitor the inflation," he said.

"But even if there were to be some breach of the inflation target band, the expectation is that this will be temporary and then, there will be a reversion to the target band," Dakila added. (PNA)