BSP likely to be patient in keeping policy rate stable – GlobalSource

THE BANGKO SENTRAL ng Pilipinas (BSP) will do that probably maintain the policy rate in the meantime, GlobalSource Partners said, adding that every oFCuts to the f-cycle could impact the economyFexpectations.

“It is our expectation that the BSP will be patient in keeping its policy rate stable. After all, for the BSP it is not just about raising or lowering interest rates interest rates,” said GlobalSource country analysts Diwa C. Guinigundo and Wilhelmina C. Mañalac say in a report.

“Keeping interest rates stable seems to be gaining more and more ground, given developments in the economyFconditions,” it added.

The Monetary Board will hold a policy meeting today (August 15).

BSP Governor Eli M. Remolona Jr. said Tuesday there is “more room to remain tight” amid faster-than-expected gross domestic product (GDP) growth in the second quarter.

Second quarter GDP grew by 6.3%, the fastest growth in Ffive quarters or since 6.4% in the Ffirst quarter of 2023.

GlobalSource noted that these latest comments from Mr Remolona differ from the BSP’s previous signals of a rate cut, possibly by 25 basis points as soon as this month.

“In previous weeks, the BSP, the country’s monetary authority, was considered a fraudFidentical in cutting policy rates even before the US Fed. Considering the last inFhowever, information has been available some pullback in reporting this week,” it added.

Head inFGrowth accelerated to 4.4% in July, the fastest in nine months. It also ended seven consecutive months of inflation remaining within the central bank’s target of 2-4%.

GlobalSource also noted that the Monetary Board’s decision to keep rates unchanged at their June meeting was the “correct decision.”

“If the BSP had eased monetary policy two months ago, its decision would have been difficult in light of the 4.4% in JulyFlation,” it said.

“While this may be a blip that may not result in a long-term trend, this one point may be enough to start aFperfect inFexpectations, disrupt capitalFlows and drive peso weakness, which is all the case undesirable for controlFlation,” it said.

The central bank previously said the spike in inflation in July is temporary and inflation should return to target by early August.

“The BSP’s conservative stance has appropriately taken into account the likelihood of June and July falling outside the target.Finterest rates, which could ultimately dissipate in the short termFexpectations — the delay in reducing ratesFTariffs on imported rice and the impact of supply constraints, especially food, are too unpredictable,” GlobalSource said.

‘NOT GOOD FOR OPTICS’
Meanwhile, GlobalSource in its report advised the central bank against any oFf cycle moves.

“However, this would not be good for optics as it would show that the BSP’s patience was too long and far behind. It’s not good either for keeping it insideFExpectations are anchored,” the report said.

Mr Remolona had previously said the central bank was “always open” to any form of repressionFf cycle moves.

GlobalSource said a change in monetary policy is “not critical at this time” due to robust growth and improved labor conditions, among other positive macroeconomic indicators.

“More important is the beneficial impact of the reduced rice tariFf on prices still needs to be adjustedFlected in subsequent inFlation numbers,” it added.

Rice prices are expected to decline due to rice imports at lower ratesFfs. Last June, President Ferdinand R. Marcos Jr. signed an executive order lowering the tariffFfs on rice imports to 15%, from 35% previously until 2028.

“Going forward, BSP must consider the remaining upside risks for the countryFcaused by higher food prices, transportation costs, higher energy rates and global fuel prices.”

GlobalSource also noted that monetary policy should aim to “ensure thatFInflation is at an appropriate level that both businesses and households, and even governments, can ignore, because price stability has provided them with the right costs for goods, services and money.”

It said monetary policy is not concerned with lowering the cost of credit to enable the government to secure cheap loans.

“Appropriate monetary policy is not about allowing consumers to borrow money from credit institutions to spend on travel and other personal needsFfects, even if within their discretion,” it added.

PESO IMPACT
Meanwhile, Treasury Secretary Ralph G. Recto, also a member of the Monetary Council, said the peso’s recent recovery will be a factor in the BSP’s potential easing cycle.

“It is a positive factor. That is a factor for easing,” he told reporters on the sidelines of a Senate hearing on Wednesday.

The local unit closed at P56.955 per dollar on Wednesday, up half a centavo from P56.96 Fready on Tuesday.

This was the peso’s strongest performance in nearly four months or since its closing rate of P56.808 per dollar on April 15.

On the other hand, strong growth and employment data support the case for keeping interest rates stable, Mr Recto said.

“We will make a decision (on Thursday) based on the data. We’ll vote on that…but it’s safe to say that, as I said, I don’t think rates will increase within a year. If it had to happen at all, it would have to go down,” he added. — Luisa Maria Jacinta C. Jocson