Philippines not yet out of the woods on inflation – BSP

MANILA, Philippines — The Philippines is not yet out of the woods when it comes to dealing with inflation, signaling a higher-for-longer elevated interest rates, according to Bangko Sentral ng Pilipinas Governor Eli Remolona Jr.

“We’re still not yet out of the woods when it comes to inflation,” Remolona told reporters in a press conference.

Inflation averaged 6.2 percent from January to November, well above the central bank’s two to four percent target range.

The headline inflation eased to a 20-month low of 4.1 percent in November from 4.9 percent in October.

To tame inflation and stabilize the peso, the BSP has raised key policy rates by 450 basis points, including the last 25-basis-point off-cycle hike delivered on Oct. 26.

As inflation and inflation expectations continued to ease, the BSP has kept interest rates steady in November and December. The benchmark interest rate currently stands at a 16-year high of 6.50 percent, the highest since the 7.50 percent recorded in May 2007.

The BSP chief pointed out that interest rates could remain higher-for-longer as monetary authorities assess the potential impact of a severe El Niño weather phenomenon on food and energy prices.

“When we have to tighten monetary policy to bring inflation down, we try to do it in a way in which we don’t tighten unnecessarily. We don’t want to tighten so that it affects growth,” Remolona said.

The BSP has lowered its risk-adjusted inflation forecasts to six percent from 6.1 percent for 2023 and to 4.2 percent from 4.4 percent for 2024, but retained the 2025 figure at 3.4 percent.

The central bank maintained a hawkish pause in November and December to assess the impact of previous rate adjustments that continue to work their way through the economy.

The BSP chief does not see an immediate pivot to monetary policy easing in the next few months as inflation outlook still leans significantly toward the upside.

He signaled that the benchmark interest rate would remain at a 16-year high “for a while.”

“Yes, I think we’re unlikely to cut rates in the next few months. We’re in a higher for longer, when I say hawkish, that basically means high for a while,” he said.

According to Remolona, rate cuts would only be considered once inflation expectations are in a “comfortable” range.

“I think we’re looking at many, many numbers, right? And if most of the numbers point in the right direction, including expectations, they really settle into this comfortable range of three percent for inflation, then we would consider cutting rates,” Remolona said.

The BSP chief remains confident that inflation could ease within the two to four percent target range as early as December and fall below three percent in the first quarter of next year.

However, he said inflation could accelerate in the second quarter of next year due to base effects and the impact of the severe El Niño.