BSP may pause rate increases — Medalla

MACTAN, Cebu — The Bangko Sentral ng Pilipinas (BSP) is likely to keep policy rates unchanged on Thursday as inflation continues to ease, its governor said on Monday.

BSP Governor Felipe M. Medalla said that the country’s consumer price index (CPI) is now lower than in January.

“If you’re sure this is a permanent trend, clearly, we must pause. Because there will be no need for another [rate hike],” Mr. Medalla told reporters on the sidelines of the BSP’s Financial Stability Conference with the International Monetary Fund (IMF) here.

Since May 2022, the Monetary Board has raised borrowing costs by 425 basis points (bps) to 6.25% as part of efforts to tame inflation.

After peaking at 8.7% in January, inflation has since eased to an eight-month low of 6.6% in April.

For the first four months of the year, the consumer price index averaged 7.9%. This is still above the BSP’s 6% full-year forecast and 2-4% target range.

The BSP chief earlier said inflation will likely ease towards 2-4% by the fourth quarter of this year. The BSP projects full-year inflation to average at 6%, before slowing to 2.9% in 2024.

According to Mr. Medalla, it would be hard to cut interest rates at a time when the interest rate differential with the US Federal Reserve matters to foreign exchange players.

“If the US [Federal Reserve] is not cutting, it’s hard for us to be cutting lower,” he said.

The US Federal Reserve delivered a 25-bp rate hike at its policy meeting earlier this month. It has now raised key policy rates by 500 bps since March last year, bringing the Fed funds rate to 5-5.25%.

Market players are expecting the Fed to start pausing its rate hike cycle at its next meeting on June 13-14.

At a press briefing, Mr. Medalla said he is confident inflation will go back to the 2-4% target by the fourth quarter this year.

“We are now seeing all prices dropping, not just food. If you take the month-on-month view, even the core inflation is dropping,” he said.

Core inflation, which excludes volatile prices of food and fuel, slowed to 7.9% in April from 8% in March, which was the highest pace since December 2000.

“But we cannot be complacent because something can happen that we did not expect,” he added.

A BusinessWorld poll last week also showed 13 out of 18 analysts expect the Monetary Board to pause its tightening cycle at its meeting on Thursday (May 18).

If realized, this would be the first time the BSP will leave interest rates untouched since it began hiking in May 2022. — By Keisha B. Ta-asan, Reporter