Philippines c. bank remains open to rate cuts

The Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona, speaking at the Reuters Global Markets Forum, highlighted the BSP’s readiness to cut interest rates as soon as August, despite a recent rise in inflation, Reuters reported on Tuesday.

Remolona remains optimistic about inflation trends despite acknowledging risks such as geopolitical tensions causing supply shocks. Inflation reached 3.9 per cent in May but the five-month average stays within the BSP’s target range of 2.0-4.0 per cent.

The BSP’s key policy rate currently stands at a 17-year high of 6.50 per cent, following a series of hikes in 2023 to combat inflation. While inflation has retreated from a 14-year peak of 8.7 per cent in January 2023, Remolona emphasised a cautious approach.

A potential rate cut in Q3 would position the BSP ahead of major central banks, including the Federal Reserve, which is expected to initiate rate cuts later in 2024.

However, strong US jobs data has dampened investor expectations of Fed cuts, impacting Asian currencies like the Philippine peso.

The governor reiterated that the BSP does not target specific exchange rates, intervening only to address market dysfunction.

The Philippine economy grew 5.7 per cent in the first quarter of 2024, slightly exceeding the previous quarter but falling short of expectations. Remolona expressed confidence in achieving the lower end of the government’s 6.0-7.0 per cent growth target for the year.

The BSP, which has held its benchmark rate steady at the past five meetings, is scheduled to meet again on June 27 to review its monetary policy stance.