BSP chief says ‘a little bit less likely’ to cut rates

The Bangko Sentral ng Pilipinas (BSP) is now “a little bit less likely” to cut rates at its Aug. 15 meeting after inflation breached the 2-4% target band in July, its governor said.

“A little bit less likely (to ease) because inflation is high. But we have to look at other numbers,” BSP Governor Eli M. Remolona, Jr. told reporters in mixed English and Filipino on the sidelines of an event on Tuesday.

Mr. Remolona said that July inflation was “slightly worse than expected.”

“That 4.4% (inflation print), there is a base effect there of 0.3 percentage point. Without the base effect, it’s really 4.1%, which is still worse than expected but not that bad because it only slightly breached the ceiling.”

Headline inflation accelerated to 4.4% in July from 3.7% in June. This was the fastest inflation print in nine months or since the 4.9% recorded in October 2023.

The July print also ended the seven straight months of inflation settling within the central bank’s 2-4% target range.

Asked if the BSP is on track to cut rates this month, Mr. Remolona replied: “Medyo (Somewhat).”

Mr. Remolona earlier signaled that the Monetary Board is on track to begin easing by August, possibly by 25 basis points (bps).

Asked if the BSP will hold rates steady, he said: “We are not sure because there is still a lot of data we are looking at.”

The BSP chief said they will be able to cut rates if gross domestic product (GDP) growth is weaker than expected. Second-quarter GDP data will be released on Aug. 8 (Thursday).

“If growth is unexpectedly weak, then it looks like our projections of inflation and inflation expectations suggest lower inflation going forward. Then we can cut,” he said.

A BusinessWorld poll of 19 economists and analysts yielded a median GDP estimate of 6% for the second quarter. If realized, this would be faster than the preliminary 5.7% expansion in the first quarter and 4.3% in the second quarter of 2023.

The government is targeting 6-7% GDP growth this year.

Mr. Remolona also said he expects the US Federal Reserve to cut in September. “It looks like they will cut because the employment report was a triple whammy.”

Global stock markets plunged on Monday amid concern the US central bank has waited too long to begin cutting interest rates. Interest rate futures contracts at the day’s end reflected overwhelming bets that the Fed will start cutting borrowing costs next month with a bigger-than-usual 50-bp reduction to its policy rate, Reuters reported.

The Fed kept its benchmark interest rate unchanged in the current 5.25%-5.5% range last week and signaled it was on course to begin cutting rates in September, but that decision was followed by worrying signs the labor market might already have turned.

The central bank is also open to the possibility of an off-cycle rate cut if it does not ease rates next week, Mr. Remolona said.

“We’re always open to off-cycle (moves),” he said.

After Aug. 15, the Monetary Board’s remaining policy-setting meetings this year are on Oct. 17 and Dec. 19

The Monetary Board has raised borrowing costs by a cumulative 450 bps from May 2022 to October 2023, bringing the key rate to an over 17-year high of 6.5%. — Luisa Maria Jacinta C. Jocson