Bangko Sentral ng Pilipinas

Bangko Sentral not easing rates until inflation settles in 2%-4% range

Lance Spencer Yu

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Bangko Sentral not easing rates until inflation settles in 2%-4% range

BSP. The Bangko Sentral ng Pilipinas headquarters in Quezon City on May 31, 2023.

Jire Carreon/Rappler

'We want to be sure we stay comfortably within the target range. And then when we’re comfortable about that, then we can start to think about easing,' says BSP Governor Eli Remolona Jr.

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) remains hawkish as it approaches its final scheduled monetary policy meeting for the year, with BSP Governor Eli Remolona Jr. saying that any easing of key policy rates now would be “premature.”

“The risks are still there. We have to assess the situation. I think it’s premature to say that we will start to ease,” Remolona told reporters on Wednesday, December 6.

The BSP’s Monetary Board is set to meet on next Thursday, December 14, for the last time in 2023, during which they may maintain, cut, or raise key policy rates. Because these key policy rates affect the interest rates on banks and financial institutions, the BSP uses adjustments to these rates as its tool to control inflation. (READ: What Bangko Sentral’s interest rate hike means for consumers and the economy)

Remolona said that the BSP remains hawkish as it approaches its December 14 meeting, meaning it could either maintain or hike rates. The central bank governor, however, highlighted that they don’t want to make “unnecessary tightening,” which could stifle growth. Generally, such rate hikes make borrowing for businesses and consumers more expensive, potentially slowing down the economy.

But the central bank has yet to see room to cut rates, a move that it won’t consider until inflation settles “comfortably” within the government’s 2% to 4% target range.

“We want to be sure we stay comfortably within the target range. And then when we’re comfortable about that, then we can start to think about easing,” Remolona said.

Inflation eased for the second straight month to 4.1% in November, although average inflation year to date remains at 6.2%, above the government’s target.

Remolona said that the latest estimates for inflation in 2024 suggests that inflation in early 2024 will be “quite low” at below 3%. Base effects could then push inflation back up to roughly 4% in the middle 2024. The BSP hopes it will then settle within the target range for the rest of 2024.

The central bank is also taking into consideration the possibility that supply shocks could raise inflation expectations, which could then actually push inflation up. 

“If they’re frequent enough, then they lead to expectations of higher inflation, and that leads to second round effects,” Remolona said. “We’re monitoring inflation expectations. We’re trying to keep expectations anchored.”

Combating inflation expectations is partly why the BSP decided to pursue a rare off-cycle rate hike last October 26, 2023. The off-cycle hike served as a “show of force” to help quell the anxiety and general expectation that prices will remain elevated.

Economy ‘still very strong’

In his discussion about possible rate adjustments, Remolona emphasized that the Philippine economy remained positive.

“The economy is still very strong. It’s a robust growth. So we’re happy about that,” Remolona told reporters.

In a separate media briefing by Maybank Securities Philippines, Maybank economist Zamros Dzulkafli said to expect the BSP to hold its key policy rate steady at 6.5% until mid 2024.

“We think BSP will keep the policy rate unchanged at 6.5% in their last meeting for the next week,” Dzulkafli told reporters on Wednesday. “We also expect the economy to be stable. We expect BSP to keep it unchanged at least during the first half of next year.”

In 2024, Maybank expects the Philippine economy to grow 6.5%, the highest among ASEAN-6 markets, which includes Malaysia, Singapore, Thailand, Indonesia, and Vietnam.

“The improvement would be attributed to a pick-up in domestic demand in 2H 2024 when we anticipate the Bangko Sentral ng Pilipinas to embark on monetary policy easing in 3Q 2024 to reduce the policy interest rate by 75 basis points from 6.5% this year to 5.75% by end of 2024,” Dzulkafli said. 

Likewise, Ruben Zamora, head of Metrobank’s institutional investors coverage division, said that they expect “slower cuts” from the BSP because “we have more to go on inflation.” But at the same time, the BSP must balance high rates with the danger of hurting economic growth.

“You don’t want to also keep rates high when inflation is already falling,” Zamora told reporters on Wednesday. “There’s that point where you slow the economy too much. You don’t also want to undermine growth. We’re still a young and growing country.” –

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Lance Spencer Yu

Lance Spencer Yu is a multimedia reporter who covers the transportation, tourism, infrastructure, finance, agriculture, and corporate sectors, as well as macroeconomic issues.