THE Philippine central bank may still be on track to slash its key interest rate by at least a quarter percentage point in August amid expectations inflation would peak this month, according to governor Eli Remolona.
“I think Aug 15 is still a possibility. Of course, it will depend on the numbers,” he told reporters late on Wednesday (Jul 31), when asked if the Bangko Sentral ng Pilipinas (BSP) will lower its key rate at its next policy meeting.
Remolona reiterated that the central bank is looking at 50 basis points in total reductions to its key rate this year, with a potential quarter-percentage point cut in August and a similar reduction later in the year.
The central bank sees inflation possibly breaching its 2 to 4 per cent goal this month due to higher power rates as well as food and fuel prices. But Remolona said the headline number – which BSP sees rising to a range of 4 to 4.8 per cent in July from 3.7 per cent in June – may peak this month, also partly due to base effects.
Lower rice tariffs will help “significantly moderate” inflation in the coming months, according to Remolona. “That’s a good thing that will help us ease monetary policy,” he said.
Monetary authorities will also consider second-quarter economic growth data set to be released next week, said the BSP chief. “We are so close to the point where we might be getting to below capacity,” he said.
Remolona has signalled growing resolve to pivot to monetary policy easing as early as next month. He has said that the BSP will not need to wait too long to reduce its policy rate, as the economy showed signs of strain with borrowing costs at a 17-year high.
An August cut would mean that the Philippines will ease ahead of the US Federal Reserve, which signalled a rate cut as soon as September. Such a move from the BSP has gotten the support of Finance Secretary Ralph Recto, Remolona’s colleague in the rate-setting monetary board.
The peso has gained against the US dollar this month, also supporting the case for a rate cut. BLOOMBERG
