‘BSP need not move in lockstep with US Fed’  

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) need not move in lockstep with the monetary policy actions of the US Federal Reserve, according to a top central bank official.

During the Philippine Economic Briefing in Singapore, BSP Deputy Governor Francisco Dakila Jr. said that domestic considerations would carry more weight now.

“On the Fed, the policy actions will remain relevant, but we see the Fed actions now as being less of a factor in decision making. What the Fed does will remain relevant, but right now, domestic considerations carry more weight,” Dakila said.

The next rate-setting meeting of the central bank’s Monetary Board is scheduled on June 22.

“Even if the Fed decides to pause its policy tightening, which it did this morning, we may not move in complete lockstep if the domestic inflation picture warrants a different response,” Dakila added.

After a year-long tightening cycle that saw key policy rates rise by a cumulative 425 basis points since May last year, the BSP took a prudent pause, as it kept interest rates steady last May 18 due to the  inflation downtrend.

Inflation eased to a 12-month low  of 6.1 percent in May from 6.6 percent in April. It averaged 7.5 percent in the first five months of the year, still above the BSP’s two to four percent target.

“With continued elevated price pressures and the risk of a global economic slowdown, the BSP’s top priority is to manage inflation and to help maintain the strength of the economy even as we gear ourselves against headwinds,” Dakila said.

The central bank’s Monetary Board lowered its inflation forecasts to 5.5 percent from six percent for this year, and to 2.8 percent from 2.9 percent for next year.

“We’ve seen the emergence of price pressures since the second half last year, and they have persisted. But lately, they have finally shown signs of easing, as evidenced by the further decline in headline inflation from 6.6 percent in April to 6.1 percent in May. Likewise, core inflation has been recently easing,” he added.

Dakila said the BSP sees inflation easing to within the two to four percent target by the fourth quarter of this year and could decelerate further to the lower end of the target by the first quarter next year due to base effects.

According to Dakila, the policy statement of the Monetary Board last May 18 is still quite hawkish as it emphasized continued vigilance and the possibility of further adjustments in monetary policy.

“We can see the monetary policy actions have been effective when we look at the foreign exchange market. Through our sustained efforts to combat above-target inflation, the peso has also greatly improved relative to its year-high level last October, following hawkish pronouncement by Fed officials,” he said.

Dakila said that the latest outturn of inflation has given the BSP the space to maintain the policy rate during the past meeting.

“We continue to see inflation will go to target consistent path. In Q4, we see inflation reverting within the target range. The practice is we remain data dependent. the Monetary Board will meet next week on what to do with the policy stance. Key to the decision is the outlook of inflation,” the BSP official said.