BSP hints at pause in next rate meeting

‘Good chance we won’t hike,’ says Remolona

MANILA, Philippines — Monetary authorities are likely to leave interest rates untouched next month after delivering a 25-basis-point off-cycle hike last Thursday,  according to Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr.

Remolona said there is a good chance the Monetary Board – the policy-setting body of the BSP – would keep interest rates unchanged on its scheduled Nov. 16 meeting as inflation likely eased in October.

After earlier signaling an additional 25-basis-point rate increase, Remolona reverted to a possible pause in the Monetary Board’s next meeting.

“The likely scenario is I’m not even sure if 25 (basis points) would be justified. So there’s a good chance we won’t hike. There’s a good chance we’ll pause and there’s a chance we might hike but 50 (basis points) is a bit of a stretch,” the BSP chief said.

The BSP raised its key policy rates by a total of 450 basis points since May last year as it intensified its battle against inflation and to stabilize the peso.

After maintaining a hawkish pause between May and September, the Monetary Board took an urgent off-cycle or unscheduled action on Oct. 26 to prevent supply-side price pressures from inducing additional second-round effects and further dislodging inflation expectations.

This brought the benchmark interest rate to a fresh 16-year high of 6.50 percent, the highest since 7.50 percent in May 2007.

Remolona said monetary authorities are waiting for crucial data including the inflation results for October as well as the gross domestic product (GDP) growth for the third quarter.

The BSP chief said a rate hike is always possible as inflation remained above the central bank’s two to four percent target range.

“It’s always possible depending on the data. If there’s a hike, more likely 25 (basis points) than 50 (basis points), depending on the data,” Remolona said.

He said inflation likely eased in October after accelerating for two straight months to 5.3 percent in August and 6.1 percent in September.

“We’re actually expecting inflation to go down (in October) but not as much as we used to expect,” he said.

Headline inflation averaged 6.6 percent from January to September this year, still way above the BSP’s two to four percent target range.

“If I remember the picture, the inflation rate will decline gradually and then there is base effect that will push inflation rate back up above the target and around July (next year), it should come down,” he said.

The BSP sees inflation remaining above its two to four percent target from March to June next year before easing back to within the target range starting July.

The chairman of the BSP Monetary Board said a higher-than-expected inflation picture could prompt an aggressive 50-basis point hike.

“50 (basis point hike) would mean really, really bad news about inflation. I don’t expect that,” Remolona said.

The BSP chief believes GDP growth rebounded slightly to 4.5 percent in the third quarter after slumping to 4.3 percent in the second quarter from 6.4 percent in the first quarter.

This would bring the average to 5.3 percent in the first half of the year, well below the six to seven percent target penned by economic managers via the Development Budget Coordination Committee (DBCC).

The economy needs to grow by at least 6.6 percent in the second half to meet the lower end of the government’s growth target.