Philippines central bank sees room to keep rates unchanged, governor says

THE Philippines’ central bank has space to maintain tight monetary policy settings this week after strong second-quarter economic output data, with plans to cut rates eventually when inflation is tamed, its governor said on Tuesday (Aug 13).

“There is more room to stay tight,” Bangko Sentral ng Pilipinas (BSP) governor Eli Remolona told reporters at a senate hearing. The central bank holds a rate-setting meeting on Thursday (Aug 15).

Remolona said the central bank also considers other components of GDP, which expanded slightly faster than expected at 6.3 per cent in the second quarter, driven by government spending and investments that offset timid consumption.

Economists polled by Reuters are divided, with 13 of 24 forecasting the BSP will hold its key interest rate steady at 6.50 per cent. The other 11 expected a 25 basis point cut.

The direction is to eventually ease the monetary policy when inflation has been tamed, Remolona said, adding the BSP does not have a timeline yet for a rate cut.

Headline inflation accelerated to 4.4 per cent in July, making a rate cut this month “a little bit less likely”, Remolona said last week. Inflation averaged 3.7 per cent in the first seven months, near the upper end of the central bank’s 2.0 per cent to 4.0 per cent target this year.

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Philippines Q2 GDP rises 6.3% y/y, just above forecasts

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With inflation under control, the benchmark rate could be cut by a total of 25 to 50 basis points in the next two quarters or by the end of 2024, Philippines Finance Secretary Ralph Recto told the same hearing.

Recto sits at the Monetary Board, which is led by the BSP governor. REUTERS