BSP urged: Ensure out-of-the-woods inflation before cutting interest rates

MANILA, Philippines — Monetary authorities must ensure that inflation is finally out of the woods before any move to ease policy rates, state-run Land Bank of the Philippines said.

Landbank president and CEO Lynette Ortiz has expressed uncertainty as to when the Bangko Sentral ng Pilipinas (BSP) may start cutting rates.

“We’re not sure yet. I think we need to see more data to ascertain that we are really out of the woods as far as inflation is concerned,” Ortiz told The STAR.

“There’s so many knock-on effects. So, I do agree with the BSP’s measure of caution before they actually bring rates down,” she said.

Initially, the market consensus is for the BSP to deliver up to four rate cuts this year for a total of 100 basis points.

However, recent expectations on inflation have slashed the magnitude and frequency of a possible easing in the second half.

Even the US Federal Reserve has signaled the possibility of fewer rate cuts this year, with the first one still projected in June.

While the BSP earlier maintained that its monetary decision will give far more weight on domestic events rather than what other monetary authorities in advanced economies would take, it is still widely expected to move in lockstep with the Fed.

“Again, that’s a big debate. As you know, it’s higher for longer. And even [Fed] Chair (Jerome) Powell has not been committed [to a rate cut],” Ortiz said.

Powell recently said the Fed is in no hurry to cut rates as monetary authorities are looking at more indicators that inflation has really been contained.

On the local front, inflation is expected to have jumped to 3.9 percent in March, which will be significantly higher than the 3.4 percent print in February and almost hitting the upper four percent  target of the BSP.

The Philippine Statistics Authority will release the latest inflation data on Friday, April 5.

Three days later, the BSP will hold its policy meeting on April 8, which was already moved from the earlier schedule of April 4.

In its February meeting, the BSP’s Monetary Board kept key policy rates unchanged at a near 17-year high of 6.5 percent as risks to the inflation outlook remain tilted toward the upside.

Nonetheless, Ortiz maintained that any rate cut in the future will be a positive development for Landbank’s loan growth.

“Our clients have held back first because of the levels right now. But when they calibrate and do their financial analysis, they will know that it becomes more affordable with lower rates so they can then manage their capital structure better,” Ortiz said.