The Philippine central bank is likely to leave its key interest rate unchanged this week, Governor Felipe Medalla said, as cooling inflation gives monetary authorities reason to pause the most aggressive tightening cycle in two decades.
(Bloomberg) — The Philippine central bank is likely to leave its key interest rate unchanged this week, Governor Felipe Medalla said, as cooling inflation gives monetary authorities reason to pause the most aggressive tightening cycle in two decades.
“If for sure this is a permanent trend, clearly we must pause,” Medalla told reporters on the sidelines of a forum of the central bank and the International Monetary Fund in central Cebu province on Monday. “But then as you know we’ve been surprised so many times before,” he added.
Inflation slowed for a third straight month in April from a year ago, reducing pressure on the Bangko Sentral ng Pilipinas to keep raising rates. BSP’s policy-making monetary board meets on Thursday to set its benchmark rate which it has increased by 425 basis points since May 2022 in one of the most aggressive tightening moves in the region.
Finance Secretary Benjamin Diokno, who sits on the central bank’s seven-member monetary board, said on Friday that he will vote for a rate pause. Policymakers in emerging markets are shifting their focus to the growing risk of a global recession, with Vietnam already cutting its key rate twice this year.
“That’s not a bad guess, but I cannot speak for the board,” Medalla said, referring to Diokno’s comment.
BSP is forecast to hold its benchmark rate at 6.25% on Thursday, according to the majority of economists surveyed by Bloomberg.
Inflation will start “looking good” in November or December, Medalla said separately. Economic growth this year will be “quite good” while potentially slowing in 2024 due to base effect, he said.
National Economic and Development Authority Secretary Arsenio Balisacan had warned that raising rates further may dampen growth ahead as pent-up demand eases. The Southeast Asian economy marked its slowest growth since exiting the pandemic-induced downturn, expanding by 6.4% in the first quarter.
Still, HSBC Holdings Plc said it may be “premature” for BSP to leave its key rate steady for now since the core consumer price index remains strong and domestic demand is still robust. In a note, HSBC said it expects another 25-basis point hike at this week’s meeting before BSP pauses its tightening cycle.
IMF Mission head Jay Peiris said on Friday the Philippines’ monetary stance may need to stay tighter for longer as core inflation remains elevated.
Asked on the potential of BSP cutting interest rates, Medalla said it’s “hard” for the Philippines to be reducing its key rate if the Federal Reserve is not lowering its own benchmark rate.
–With assistance from Andreo Calonzo and Karl Lester M. Yap.
(Adds Medalla’s comments throughout. An earlier version of this story corrected the size of rate hikes since May 2022 and reference to growth period in 8th paragraph to first quarter.)
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