THE Bangko Sentral ng Pilipinas (BSP) is not yet considering a shift toward monetary easing as inflation is expected to remain elevated for the coming months.
“Easing? We're still in the tightening phase, so we don't know,” BSP Governor Eli Remolona Jr. told reporters at the sidelines of the
European Chamber of Commerce of the Philippines (ECCP) Meeting on Tuesday.
Remolona said they continue to monitor persistent price pressures and the risk that inflation could remain elevated longer than anticipated.
“Our policy is forward-looking. So, we are estimating that if the inflation continues to fall, then we will not tighten,” Remolona said.
The BSP policymaking body Monetary Board has raised the key policy rates by 50 basis points last month due to expectations of higher inflation.
Benchmark rates now stand at a higher 5.5 percent and Remolona said policy decisions would depend largely on the trajectory of inflation, particularly its underlying components, rather than short-term movements in headline prices.
The BSP maintained its inflation forecast at 6.1 percent for this year but raised it to 6 percent for 2027 from 5.4 percent previously. It kept its inflation estimate at 3.3 percent for 2028.
Remolona said the central bank would be more comfortable considering an end to monetary tightening once headline and core inflation showed a sustained improvement and appeared to be moving toward the 2.0 to 4.0 percent target.
“What we really monitor is the core, because we have nothing to do with volatility,” Remolona said.
“So, if the core seems to be okay, it will return within the target, then we don't need to tighten,” he added.
Economy recovering
The central bank also takes into account economic growth when determining the appropriate direction of monetary policy, limiting the tightening cycle.
“The tightening or easing, it takes account of both inflation and growth. There is an output gap and that is the difference between our actual growth rate and our potential growth rate,” Remolona said.
“So, if that is too negative, it is less likely for us to tighten,” he added.
This means that while persistent inflation could warrant further interest rate increases, a prolonged economic slowdown could limit the central bank's appetite for additional tightening.
Remolona said the economy was already recovering, with the government working to accelerate public spending to support economic activity.
“So, our expectation is the economy will recover by fourth quarter [this year] or first quarter next year,” Remolona said.
“Since the government is trying very hard to accelerate spending,” he added.
Gross domestic product (GDP) growth slowed to 2.3 percent in the second quarter of this year due to lingering effects of the corruption scandal last year and the Middle East war early this year.
This is below the 3.5 to 4.5 percent target of the government.
The University of Asia and the Pacific (UA&P) Capital Markets Research said in its latest market call that growth could remain around 2.0 percent as sticky oil prices and slow government spending still weigh on growth.
“While third-quarter GDP growth is expected to remain sluggish at around 2 percent, economic performance is set for a noticeable rebound in the fourth quarter,” UA&P said.
“This anticipated momentum will be driven by seasonal Christmas spending, robust peso-denominated OFW remittances, accelerated year-end infrastructure disbursement, favorable weather conditions,” it added.
UA&P said that since growth faces “temporary pressure” from local and global uncertainties, this could still give the central bank a room to increase policy rates next month.
“BSP's hawkish inflation stance with El Niño in mind may lead to another likely 25 bps hike in December,” UA&P said.
It added that inflation could hit 8.0 percent in the last three months of the year.
“Targeted government supply measures remain key to limiting secondary price effects and bringing inflation back toward the 3 percent midpoint, especially as the aggressive El Niño season threatens another round of faster inflation into 2027,” UA&P said.
