BSP to stick with a range for inflation target

PANGLAO, Bohol — The Bangko Sentral ng Pilipinas (BSP) said it plans to continue setting a range for its inflation target amid potential risks of having a precise goal.

“So, as you know, our current target is 3% plus or minus 1%. Our recent inflation rates are actually even below that range, doing 1.7%…” BSP Governor Eli M. Remolona, Jr. said at a press briefing after a central banking symposium held here on Monday. “I think this is consistent with Governor Sethaput’s advice that we shouldn’t focus too much on the precise number.”

This, after former Bank of Thailand Governor Sethaput Suthiwartnarueput said during the symposium that central banks should have a more flexible inflation targeting framework.

“I would argue that we need to make that inflation targeting framework even more flexible,” Mr. Suthiwartnarueput said. “And why is that? Again, I think given the challenges that we face, we’re likely to face larger and longer deviations from inflation targeting.”

“And so the idea of trying to use very specific numerical targets, I think, is quite uncomfortable,” he added.

Earlier this year, Mr. Remolona said the BSP was eyeing to set a point target for inflation to mirror inflation targeting frameworks of foreign central banks such as the US Federal Reserve.

Currently, the BSP targets full-year headline inflation to settle between 2% to 4%.

“I think we would follow (Mr. Suthiwartnarueput’s) advice and not be too concerned about the precise numerical number,” Mr. Remolona said.

He also noted that the central banks’ inflation expectations are “more or less anchored.”

However, he added that they are developing a mechanism to precisely measure the degree of anchoring.

RRR cut

Meanwhile, the BSP chief said it could trim large banks’ reserve requirement ratio (RRR) but it is not rushing to do so.

“I would say it’s on the table but there’s no urgency in adjusting it,” he said.

Mr. Remolona noted that the current 5% RRR is “pretty low” but any further easing would depend on whether the BSP could successfully manage liquidity in the market.

He added that he is unsure when they would deliver an RRR cut, adding that it would depend on the Monetary Board.

The Monetary Board last reduced universal and commercial banks and non-bank financial institutions with quasi-banking functions’ RRR by 200 bps to 5% on Feb. 21, which took effect in the week of March 28.

It likewise reduced digital banks’ by 150 bps to 2.5%, while thrift banks’ RRR was lowered by 100 bps to 0%. — Katherine K. Chan