THE Bangko Sentral ng Pilipinas (BSP) has adopted a “wait and see” approach given the level of uncertainty caused by the war in the Middle East, Governor Eli Remolona Jr. said on Friday.
Monetary authorities “erred on the side of caution” in deciding to keep key interest rates unchanged during an off-cycle meeting last month, he said in a CNBC interview.
“It was a tough decision, but we felt that given that we were facing a global supply shock, there was very little we could do about that on the monetary policy [side]...,” Remolona said.
“Whereas we were seeing weak [economic] growth, we didn’t [want to] make that worse. So we erred on the side of caution — we decided to wait and see.”
“[W]e’ll [likely] have a much better sense of where we stand” when the April 23 policy meeting comes around, Remolona said.
Tightening — the usual response to rising inflation — would have had little impact given the supply shock thus the choice to wait for the spillover effects on demand.
The BSP raised its inflation forecast for this year to 5.1 percent during last month’s off-cycle meeting, above the 2.0- to 4.0-percent target, and warned of risks to the outlook.
Data released this week showed that the rate surged to 4.1 percent in March from just 2.4 percent a month earlier as fuel prices skyrocketed.
Price pressures from the US-Israel war on Iran, Remolona said, were different compared to when Russia invaded Ukraine in 2022.
“The sense of uncertainty is bigger now than before,” he said.
Despite this, Remolona said inflation expectations remain anchored. The BSP expects the rate to return to target next year at 3.8 percent.
On the issue of the peso’s having fallen to record lows, Remolona said the central bank would only step to address excessive volatility.
“Some depreciation, I think, is called for, and that’s what the market is trying to do right now,” he said.
“We’ve been facing trade deficits for several years now — basically, our imports are too cheap and our exports are too expensive.”
