It may be too soon for the Philippine central bank to pause from raising interest rates at its next policy meeting in May, Governor Felipe Medalla said, signaling its most aggressive tightening cycle in two decades could continue.
(Bloomberg) — It may be too soon for the Philippine central bank to pause from raising interest rates at its next policy meeting in May, Governor Felipe Medalla said, signaling its most aggressive tightening cycle in two decades could continue.
May is “too early” to pause, “unless we actually see a price fall,” Medalla said in an interview Thursday on the sidelines of the Association of Southeast Asian Nations forum in Bali, Indonesia.
The Bangko Sentral ng Pilipinas remains “cautious” and needs to see “enough low month-on-month inflation, to give the public confidence that the BSP forecast of inflation averaging 2.9% is quite likely,” he said, referring to its 2024 estimate.
Annual inflation stood at 8.6% in February, still near a 14-year high, and the core price gauge, which strips out volatile food and fuel costs, was the fastest in 24 years. Medalla said the central bank could pause its rate hike cycle if prices decline on a month-on-month basis. The price index in February was unchanged from January.
It’s the latest signal from the BSP chief that the tightening cycle can extend even after it has raised its key rate by 425 basis points since May, among the most aggressive moves in the region. On Wednesday, Medalla said the BSP can raise policy rate further without risking financial stability.
Medalla’s comments contrast with those of Finance Secretary Benjamin Diokno, a member of the BSP’s policymaking monetary board, who on Sunday made the case for a pause, saying the central bank has done enough to address inflation.
Medalla also said on Thursday that Philippine banks can absorb higher interest rates as they’re very liquid and well-capitalized, having cut back on their bond holdings during the pandemic. The rate increases have yet to restrict economic growth, he said.
“My point is we have enough tools and our main tool, the interest rate, does not have the undesirable effect of destroying the balance sheet of banks or significantly reducing GDP growth,” he said.
–With assistance from Ditas Lopez and Andreo Calonzo.
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