BSP sees room to keep rates stable

By means of Luisa Maria Jacinta C. Jocson, News reporter

THE PHILIPPINE central bank would likely keep policy settings on hold, given “the development inFconditions,” Gov. Eli M. Remolona Jr. said Monday, even as he signaled a less restrictive stance if price pressures continue to ease.

“Evolving inflation conditions show that the BSP (Bangko Sentral ng Pilipinas) can keep its policy settings stable for the time being,” Mr. Remolona said during a meeting of the Development Budget Coordination Committee (DBCC).FMonday before the House Appropriations Committee.

“If price pressures continue to ease, it may be possible for the BSP to consider a less restrictive monetary policy.”

In June, the BSP kept the policy rate unchanged for the sixth time in a row at a more than 17-year high of 6.5%. Mr Remolona has previously indicated that the central bank is on track to cut rates by August, possibly by 25 basis points.

The next interest rate meeting of the Monetary Board is on August 15.

Mr Remolona said ongoing supply concerns and geopolitical tensions warrant continued and close monitoring of risks to the domestic marketFprospects.

Headline inflation likely accelerated to 4% in July Business poll of 15 analysts conducted last week, mainly due to high food and electricity prices.

If this is achieved, this could be the eighth month in a rowFThis happened within the BSP’s target range of 2-4%.

July inFThe data will be released today (August 6).

Mr Remolona said that the balance of risks for the inFThe outlook is downwards, mainly due to the recently adopted tariffFf cuts in rice imports.

“The BSP’s latest forecast includes the rice tariFThe cut in interest rates will have a very significant downward impact on the inflation trajectory until 2025,” he added.

In June, President Ferdinand R. Marcos Jr. signed Executive Order No. 62, which reduced the tariffFfs on rice imports to 15%, compared to 35% previously, until 2028.

This is part of a reduced rateFf scheme for other agricultural products such as pork and maize referred to inFrestrictive measures.

Mr. Remolona said the recent order will be “useful in our efforts to curb inflation.”

“However, since August 2023FThe situation was dominated by rice prices. Like insideFIf production were driven solely by demand, there would be a more even distribution of these different components of inFlation.”

“Our research shows that when people are concerned about higher prices, when we ask them why, more than 90% will say it is because of the price of rice,” he added.

Rice in itFRice production fell to 22.5% in June, marking the third straight month of slower riceFlat. Rice accounted for almost half of the total turnoverFduring the month.

As of August 2, the price of a kilo of well-milled rice averaged P48-P55, compared to P41-P49 in the same period a year ago. Normal milled rice averaged P45-P55, compared to P37-P44 a year earlier.

“There is indeed strong empirical evidence that rice prices influence inflation expectations to a very large extent. And these inflation expectations lead to second round eFfects,” said Mr Remolona.

Meanwhile, Mr. Remolona said he is watchingFremain within the 2-4% target this year and in 2025, as well as in 2025FExpectations remain ‘well anchored’.

However, he still cited upside risks to this outlook.

“These risks will come from higher domestic prices of food products other than rice, from transport costs and from electricity tariffs,” Mr Remolona said.

Secretary of the National Economic and Development Authority Arsenio M. Balisacan also mentioned other factors that could fuelFsuch as wage adjustments.

“Risks related to inflation, such as potential adjustments in utility rates, wages and service charges, could have significant impacts.Fdrastically reduce expenditure. It is imperative that we carefully consider these factors in our economic planning and decision-making processes,” he told lawmakers.

Last month, the Regional Tripartite Council on Wages and Productivity approved a P35 minimum wage increase for workers in the National Capital Region, which eFfect on July 17.

Programs like Pambansang Pabahay Para sa Pilipino Housing (4PH) may also have entered unintentionallyFlationary consequences, Mr. Balisacan said.

“Expected rapid economic growth, especially with the implementation of the 4PH program, could lead to upward inflationary pressures and hold back economic gains.”

The 4PH belongs to the government Flagship housing program. The government wants to build a million homes annually under the program until 2028.