Philippine central bank Governor Felipe Medalla said it’s “very dangerous” for the monetary authority to loosen policy settings “faster” than the Federal Reserve, as such a move may adversely affect the local currency.
(Bloomberg) — Philippine central bank Governor Felipe Medalla said it’s “very dangerous” for the monetary authority to loosen policy settings “faster” than the Federal Reserve, as such a move may adversely affect the local currency.
“Suppose the US is not cutting but we are, what will happen to the peso?” Medalla told reporters on Wednesday. The governor addressed the issue of monetary easing as “some people are saying that BSP will cut ahead of time” if local inflation cools below 4% by yearend. “But it’s not as simple as that,” he said.
Keeping Philippine policy rates higher than the Fed makes sense as the peso continues to experience some volatility, according to Medalla, especially as US inflation remains sticky. The Philippine currency recouped some losses in the past few days after sliding to a four-month low last week. At 3 pm in Manila, the peso was little changed at 55.575 per dollar.
After a year of aggressive tightening, the Fed is still expected to raise rates by a quarter point when it meets next week. For its part, the Bangko Sentral ng Pilipinas could pause its tightening cycle at the May 18 meeting if the downward trend in inflation continues, Medalla said earlier this month.
Price pressures in the Philippines were mainly caused by shortages in farm products and not by excess money, the governor said Wednesday at the BSP’s exhibit on financial stability, where he also reiterated that local banks are well-capitalized and not as badly affected by the US banking troubles.
Medalla also said he expects the economy to have expanded around 6% in the first quarter and that the BSP’s growth forecast for 2023 is consistent with the lower end of the 6%-7% outlook by the country’s economic managers. The first-quarter economic report is scheduled for May 11.
–With assistance from Andreo Calonzo.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.