ING: BSP to remain data-dependent

MANILA, Philippines — Dutch financial giant ING Bank believes the Bangko Sentral ng Pilipinas (BSP)’s monetary policy actions will continue to be data-dependent after the US Federal Reserve warned that the continued strength of the US economy would require further interest rate hikes.

ING Bank senior economist Nicholas Mapa said “rate hikes are possible if the Fed continues to hike, while also remaining open to pausing or cutting should the Fed do so.”

“BSP will continue to be data-dependent and not wedded to a particular strategy,” Mapa told The STAR.

During the annual Jackson Hole Economic Policy Symposium, US Fed chair Jerome Powell said further rate hikes may be needed to “cool the still-too-high inflation.”

Mapa said Powell’s statement was quite balanced as he left the door open for a pause when he said they would proceed carefully, but also maintained that the Fed was ready to hike more if growth continued to be above trend.

“He also said policy-making will be more deliberate as risk management is critical. He also said policy rates are now in restrictive territory, with growth expected to eventually slow as they use elevated borrowing costs to bring growth below trend,” Mapa said.

The Fed raised rates by a total of 5.25 percentage points since March 2022 and inflation, by the Fed’s preferred gauge, moved down to 3.3 percent from its peak of seven percent last summer.

In the Philippines, the BSP extended its hawkish pause as it kept key policy rates untouched for the third straight rate-setting meeting on Aug. 17.

The Philippine central bank jacked up interest rates by 425 basis points between May last year to March this year to tame inflation and stabilize the peso. This brought the benchmark interest rate to a 16-year high of 6.25 percent.

Due to the inflation downtrend and the slower-than-expected gross domestic product (GDP) growth in the second quarter, the BSP maintained interest rates steady since May.

Inflation averaged 5.8 percent in the seven-month period, exceeding the BSP’s two to four percent target range, despite easing to 4.7 percent in July from a peak of 8.7 percent last January.

The BSP hiked its inflation forecasts to 5.6 percent from 5.4 percent for this year, 3.3 percent from 2.9 percent next year and 3.4 percent from 3.2 percent for 2025 due to upside risks.

BSP Governor Eli Remolona Jr. has left the door open for rate hikes if the upside risks to inflation materialize despite the hawkish pause from its tightening cycle.

“I think a hawkish pause is the right way to describe it. The data, you know, we go where the data lead us, but the data seem to be going in two different directions. So I think a pause is prudent, but we’re ready to hike if the upside risks materialize,” Remolona said.