Rate cut possible within the year, says BSP guv

Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. is optimistic that rate cut is possible by the latter part of the year.

“Oo naman. Within the year, oo (Yes. Within the year, yes) but maybe [the] first semester is too soon. But we’ll see with the numbers,” Remolona told reporters on the sidelines of the annual reception for the banking community late Friday.

Since May 2022, the BSP has so far raised benchmark rates by a total of 450 basis points to temper rising inflation.

The Monetary Board of BSP has kept policy rates unchanged during its last two consecutive meetings in 2023.

According to Remolona, January 2024 headline inflation rate is likely to be a “low number because of base effects.”

“So you have to (kind of) adjust for base effects because the January number will be measured relative to January 2023. The January 2023 was high at 8.7 percent, so because of that, the number that will come out in January might be a bit low. And then, babawi ‘yun sa (it might go up in the) second quarter, so second quarter numbers may be a bit high, so we have to adjust for that,” he said.

Headline inflation further eased to 3.9 percent in December 2023, finally settling within the government’s 2 to 4 percent target range.

It was the lowest since 3 percent in February 2022.

The official January 2024 headline inflation data will be released early next month.

Remolona noted that should economic growth become stronger, this would give the BSP some room to further hike rates.

The Philippine economy grew by 5.5 percent during the first three quarters of the 2023.

The Philippine Statistics Authority will release on Wednesday the full-year economic growth data.

“If the growth is strong, that gives us a bit more room to hike. If the growth is strong, it means the economy can withstand [further rate hikes],” he said.

BSP goals

Meanwhile, in his speech during the event, the BSP chief lined up the agency’s goals.

“First, we want to further enhance our monetary policy framework by sharpening our research, our model, and non-monetary tools. We want these to be more responsive to inflation pressures, particularly during periods of unusual and large supply shocks,” he said.

He mentioned that BSP managed to anchor inflation expectations and thus, effectively control second-round effects.

Remolona said the BSP would also strengthen the way it conducts systemic risk oversight.

“You saw what happened in March 2023 with Silicon Valley Bank and Credit Suisse. We don’t want this to happen to us. And for now, the banking system remains healthy, characterized by strong balance sheets, profitable operations, and sound performance indicators,” he explained.

“The banking system likewise stood firm and proved its true resilience through the pandemic and through the international disruptions of March 2023.”

The California-based Silicon Valley Bank collapsed while Credit Suisse was rescued by rival UBS Grroup AG in a deal brokered by the Swiss government.

Remolona said the BSP also intends to deepen the country’s capital markets.

He said this is meant to diversify the sources of funds in the financial system, allowing businesses and investments to not rely entirely on the banking system in case there is a credit crunch.

Lastly, he said the BSP would strive to make the central bank’s sustainability initiative more meaningful by infusing it with an inclusion perspective.

“We want to ensure that the entire financial system supports an inclusive adaptation program so that the burden of transmission does not fall on the most vulnerable segments of our society,” he said.

Parallel to this, the BSP is harnessing digital technology to empower sectors which have been traditionally underbanked. We think our open financial framework will unlock opportunities for consumers,” he added. (PNA)