Philippines signals rate pause on view supply shock may ease

PHILIPPINE central bank Governor Eli Remolona signalled a continued pause in its policy rate amid expectations that a supply-driven inflation shock last month would soon dissipate.

The Bangko Sentral ng Pilipinas doesn’t need to raise its key rate in its next policy meeting on Sept 21 “if there are no further supply shocks beyond that uptick in August,” Remolona said at a briefing on Thursday (Sep 14). “It won’t justify an easing, but it won’t be necessary to raise the policy rate,” he said.

The central bank has stood pat on its policy rate for three straight meetings, but has said it’s ready to resume tightening, if needed, to prevent consumer prices from flaring up and to keep inflation expectations well-anchored.

Remolona was speaking at a media briefing about financial inclusion in Manila, where central bankers and regulators gathered to discuss ways to make financial products and services accessible to all. Financial inclusion helps strengthen the central bank’s monetary policy transmission mechanism, tempering the need to raise policy rates more, he said.

Inflation in the Philippines accelerated again in August to 5.3 per cent, snapping a six-month slowdown. The uptick was mainly due to rice prices, which increased at their quickest pace in nearly five years because of tighter supply and hoarding locally.

“Food prices caused the uptick, but these kinds of supply shocks – they dissipate usually very quickly,” the central bank chief said. He reiterated that inflation will likely be within the BSP’s 2 per cent-4 per cent target by October.

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Remolona said the monetary authority is “really, really serious about price stability,” pointing out that price shocks are particularly “harmful to the poor.” He said hitting the inflation goal is not enough, adding “we want to be comfortably within the target range.” BLOOMBERG