Recto expects BSP to keep rates stable amid a weak peso

LATEST INFLATION DATA and the The peso’s recent performance will likely prompt the central bank to extend its policy pause, Treasury Secretary Ralph G. Recto said.

“We will look at the data. So far, the way I see it, I think unless something changes between now and then, it will be more or less stable,” he told reporters late on Tuesday.

Mr Recto is part of the seven-member Monetary Council, which will meet today (May 16).

The BSP is widely expected to keep its benchmark interest rate at a 17-year high of 6.5%, 17 of 19 analysts said in a Business poll from last week.

From May 2022 to October 2023, the central bank raised rates by a total of 450 basis points (bps) to keep rates in check.Flat. The off-cycle interest rate rise last increased financing costs in October.

“It all depends on inflation. We’re all going back to inflation. Expectations for inflation this year are lower than expected. But it will still be sticky. I think it will be a little higher next year too,” Mr Recto said.

Inflation accelerated for the third month in a row from 3.7% in March to 3.8% in April. It was also the fifth consecutive month in which inflation fell within the BSP’s target range of 2-4%.

Inflation averaged 3.4% in the January-April period, lower than the central bank’s annual forecast of 3.8%.

Mr Recto said the peso’s recent performance will also be factored into Thursday’s Monetary Council decision.

“That’s part of why I think rates will stay the same,” he said.

The peso has been trading at the P57 level since mid-April.

The peso closed at P57.505 against the dollar on Wednesday, strengthening 33.5 centavos from Tuesday’s P57.84.

The finance chief said the Monetary Board could start cutting interest rates in the fourth quarter of this year.

“I expect rates to drop in the future. Maybe not this Monetary Board (meeting), but it is possible that there could be a possible cut in interest rates by the end of the year,” he said.

BSP Governor Eli M. Remolona Jr. said they could cut rates if inflation calms down Fespecially in the 3% area. — Luisa Maria Jacinta C. Jocson