“More room to stay tight,” says BSP

By means of Luisa Maria Jacinta C. Jocson, Reporter

THE BANGKO SENTRAL ng Pilipinas (BSP) said on Tuesday there is “more room to remain tight” after better-than-expected gross domestic product (GDP) growth in the second quarter.

“The 6.3% (GDP growth)… there’s more room to stay tight, right? But there are many factors,” BSP Governor Eli M. Remolona Jr. told reporters on the sidelines of a Development Budget Coordinating Committee.Fat the Senate.

“It’s not like the United States, their economy is weaker. They are more inclined to relax. That’s just one number. We will look at all the numbers,” he said in mixed English and Filipino.

The Philippine economy grew 6.3% in the second quarter, faster than 5.8% in the previous quarter and 4.3% a year ago. This was also the fastest growth in five quarters or since 6.4% in the Ffirst quarter of 2023.

“We look at all components. Our models take into account different components of GDP,” Mr Remolona added.

The BSP chief said the latest GDP performance “helps” keep interest rates stable as the risk of a hard landing diminishes.

“In the US the risk of a hard landing is higher, but I also see less of a hard landing in the US now,” he added.

The Monetary Board will meet on Thursday for the third and final policy review of the year.

A Business world A poll last week showed that nine out of 16 analysts surveyed expect the Monetary Board to cut rates by 25 basis points (bp) this week.

During the hearing, Mr Remolona told senators that the 6.5% reference rate is “tight”.

“It’s tight because we’re trying to rein in inflation… the direction, of course, is to eventually ease monetary policy, which means a lower policy rate. So we plan to relax when conditions are right… when we feel good about itFlation has been tamed.”

Mr Remolona said the BSP does not want to keep interest rates high for “unnecessarily” for a long time as this could lead to production losses.

“As soon as we feel like itFIf interest rates move towards our target range, we will have room to cut the policy rate,” he added.

Headline inflation accelerated to 4.4% in July, the fastest in nine months. It also ended with seven consecutive games months of inFlat settlement within the central bank’s target of 2-4%.

The BSP previously said the peak would be in JulyFThe inflation is temporary and inflation should return to target from August.

For the rest of the year and until 2025, inFThe situation should ease further and remain within target, Mr Remolona said.

“We are relieved that monetary policy has apparently helped to calm the situationFlat. This is againFin our inFprojections… We expect average inflation to fall within our target range of 2-4% in 2024 and 2025,” he said.

The BSP expects inflation to average 3.3% this year and 3.1% in 2025. Ffirst seven months, head onFaverage 3.7%.

“We used to think we could ignore supply shocks because they would eventually disappear. The hard lesson is major supply shocks inflation expectations change, leading to inFlationary second-round effects,” Mr. Remolona added.

Treasury Secretary Ralph G. Recto, also a member of the Monetary Council, said he expects policy easing to begin soon.

“In terms of my expectations, I think policy rates are coming down,” he said.

“It could be tomorrow, it could be in September, it could be in October, but I think I can safely predict for the next two quarters that we can probably cut rates by 25 to 50 basis points. I expect that over the next year and a half we will be able to cut another 100 basis points next year.”