Connect with us

Business and Economy

Rate hike possible amid inflation: BSP chief

Published

on

BSP Governor Eli Remolona

In an interview over Bloomberg Television Friday, Remolona said “upside risks seem more likely than usual so that, to me, seems like there’s a good chance for a hike the next time.” (File Photo: Bangko Sentral ng Pilipinas/Facebook)

MANILA – A rate cut is not on the table given the expectations of within-target inflation in the last quarter of 2023 and still strong domestic output, according to Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona.

In an interview over Bloomberg Television Friday, Remolona said “upside risks seem more likely than usual so that, to me, seems like there’s a good chance for a hike the next time.”

“I wouldn’t say it’s being considered for the next meeting. The next meeting is in November. Rate cuts are not on the table for the next meeting but rate hikes are,” he said.

On Thursday, the BSP’s policy-making Monetary Board (MB) kept for the fourth consecutive rate setting meeting the central bank’s key rates, with the target reverse repurchase (RRP) rate at 6.25 percent after noting the rise of the inflation path relative to past assessments.

This, after the August 2023 inflation rate accelerated to 5.3 percent from month-ago’s 4.7 percent, ending a six-month slide.

The average inflation to date stood at 6.6 percent, way higher than the government’s 2 percent to 4 percent target band.

Remolona said there was a unanimous decision among the seven-man MB to keep the BSP key rates steady on Thursday even with the inflation uptick last August because even if the “last number that came in was worse than before but it wasn’t enough for us to hike this time.”

“So, we’ll see. We’ll have to watch the numbers,” he said.

The BSP chief said monetary authorities are primarily considering as additional upside risks to inflation the transport fare hike petitions, which are “very likely that it will go through” and the power rate hikes, “that’s also very likely, we think.”

“Those two things could add something like 0.5 percent to the forecast of inflation for 2024,” he added.

The Board hiked on Thursday the BSP’s average inflation forecast for 2023 from 5.6 percent to 5.8 percent and the 2024 projection from 3.3 percent to 3.5 percent due to recent developments.

It kept the BSP’s 2025 average inflation forecast at 3.4 percent.

Remolona said the policy decision of the United States Federal Reserve “is not a big factor this time”, citing the Fed’s dovish stance for this year and hawkish position for 2024.

He said the latest performance of the local currency is “not that much of a factor” in the latest MB decision as it was last year when it was depreciating after the series of rate hikes by the Fed.

Remolona said that although the peso is weakening against the US dollar, “the weakness seems not to come from the difference in policy rates between us and the US (but) it comes more from uncertainty about the economic outlook. “

“It’s not so much peso weakness, it’s more dollar strength. With more uncertainty, there is (a) more safe-haven factor that makes investors go into the dollar,” he added.

“Currency protection is a small thing for us at this point. The currency hasn’t depreciated, not too different from what fundamentals would say. It’s more of a risk thing. When the data comes out and the data are mixed, or when the minutes of the FOMC (Federal Open Market Committee) come out and they’re not consistent with the earlier statement, there’s a bit of uncertainty that comes into the currency market. And that tends to weaken not just the peso but other emerging market currencies as well,” he said.

In terms of the BSP’s rate decisions vis-à-vis the domestic output, Remolona said the lag of the policy decisions is expected until the first half of 2024.

“At this point, when you look at our output gap, which is one way to measure whether we are restrictive, the output gap now is basically zero. So another hike would mean falling below potential. But that’s a price we may have to pay if inflation is too high,” he said.

The country’s gross domestic product slowed for the third consecutive quarter this year to 4.3 percent, partly due to elevated inflation rate.

The average growth in the first half of this year stood at 5.3 percent, lower than the government’s 6 percent to 7 percent target band.

Remolona said supply shocks, which are greatly affecting the inflation rate, “seem to dissipate very quickly.”

“But the problem is there tend(s) to be new supply shocks. And so the lags from supply shocks on inflation seem to be relatively short, except that they seem to be relentless. They keep coming. And so that’s what keeps our inflation rate high,” he added.

Should the MB hike the BSP’s key rates during its November 2023 meeting, Remolona said “we’re not convinced (that) it would be the last one, won’t be the last hike in the cycle.”

“We’re not convinced that as far as (policy rate) cuts go, output numbers will have to be pretty bad, (and) inflation numbers to be pretty low for us to consider rate cut(s) next year,” he added.

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Maria in Vancouver

Lifestyle1 week ago

Never Settle For Less Than You Are

Before I became a mother, before I became a wife, before I became a business partner to my husband, I...

Lifestyle3 weeks ago

Celebrating My Womanhood

The month of March is all about celebrating women and what better way to celebrate it than by enjoying and...

Lifestyle1 month ago

Maria’s Funny Valentine With An Ex!

Maria in Vancouver can’t help but wonder: when will she ever flip her negative thoughts to positive thoughts when it...

Lifestyle2 months ago

The Tea on Vancouver’s Dating Scene

Before Maria in Vancouver met The Last One seven years ago and even long before she eventually married him (three...

Lifestyle3 months ago

How I Got My Groove Back

Life is not life if it’s just plain sailing! Real life is all about the ups and downs and most...

Lifestyle3 months ago

Upgrade Your Life in 2025

It’s a brand new year and a wonderful opportunity to become a brand new you! The word upgrade can mean...

Maria in Vancouver4 months ago

Fantabulous Christmas Party Ideas

It’s that special and merry time of the year when you get to have a wonderful excuse to celebrate amongst...

Lifestyle4 months ago

How To Do Christmas & Hanukkah This Year

Christmas 2024 is literally just around the corner! Here in Vancouver, we just finished celebrating Taylor Swift’s last leg of...

Lifestyle5 months ago

Nobody Wants This…IRL (In Real Life)

Just like everyone else who’s binged on Netflix series, “Nobody Wants This” — a romcom about a newly single rabbi...

Lifestyle5 months ago

Family Estrangement: Why It’s Okay

Family estrangement is the absence of a previously long-standing relationship between family members via emotional or physical distancing to the...