{"id":18951,"date":"2024-05-28T03:05:45","date_gmt":"2024-05-28T03:05:45","guid":{"rendered":"https:\/\/energybuzz.ph\/staging\/6915\/bsp-to-maintain-restrictive-policy\/"},"modified":"2024-05-28T03:05:45","modified_gmt":"2024-05-28T03:05:45","slug":"bsp-to-maintain-restrictive-policy","status":"publish","type":"post","link":"https:\/\/energybuzz.ph\/staging\/6915\/bsp-to-maintain-restrictive-policy\/","title":{"rendered":"BSP to maintain \u2018restrictive\u2019 policy"},"content":{"rendered":"
\n

By Luisa Maria Jacinta C. <\/b>Jocson, <\/b><\/span>Reporter<\/i><\/p>\n

THE Bangko Sentral ng Pilipinas (BSP) will keep monetary policy settings \u201crestrictive\u201d as upside risks to in<\/span>f<\/span>lation remain.<\/span><\/p>\n

\u201cGiven upside risks, the BSP has decided to su<\/span>ff<\/span>iciently maintain a restrictive policy stance in order to ensure that we anchor inflation expectations, so that it will not result in further second-round effects,\u201d BSP Senior Assistant Governor Iluminada T. Sicat said at the Philippine Economic Briefing on Monday. <\/span><\/p>\n

The central bank is anticipating faster in<\/span>f<\/span>lation from May to July, but expects it to return to within the 2-4% target after.<\/span><\/p>\n

\u201cAt the end of the year, the average in<\/span>flation rate, based on our risk-adjusted outlook [will be] within the target, but on the upper end of the target range,\u201d Ms. Sicat said.<\/span><\/p>\n

The BSP\u2019s baseline forecast for in<\/span>f<\/span>lation this year is 3.5% while its risk-adjusted forecast is 3.8%.<\/span><\/p>\n

\u201cThat is precisely the reason why the BSP must be very careful not to bring down interest rates too early or else we may not be able to address some of the upside risks that we are seeing in the future,\u201d she added. <\/span><\/p>\n

The Monetary Board stood pat for a fifth straight meeting in May, keeping its benchmark rate at a 17-year high of 6.5%.<\/p>\n

BSP Governor Eli M. Remolona, Jr. earlier said the central bank could begin policy easing as early as August.<\/span><\/p>\n

International Monetary Fund (IMF) Representative to the Philippines Ragnar Gudmundsson said the BSP should maintain a \u201csufficiently restrictive\u201d monetary policy stance until in<\/span>f<\/span>lation settles <\/span>f<\/span>irmly within target.<\/span><\/p>\n

He also said domestic data should be the primary consideration when it comes to monetary policy.<\/span><\/p>\n

\u201cThe suggestion not to follow the Fed too closely needs to be understood in the context of efforts to tame domestic inflationary pressures,\u201d he said. \u201cWhen considering the path of monitoring policy and policy interest rate decisions\u2026\u00a0 <\/span>the BSP\u2019s decisions in this case should f<\/span>irst and foremost be data-dependent and driven by domestic price considerations.\u201d<\/p>\n

However, he noted that the US Federal Reserve actions should be considered as well since they also affect capital outflows. <\/span><\/p>\n

150 BPS OF RATE CUTS
\n<\/b>Meanwhile, Finance Secretary Ralph G. Recto said the Monetary Board could reduce the policy rate by as much as 150 basis points (bps) in the next two years.<\/span><\/p>\n

\u201cIt\u2019s possible that you may have a rate cut this year and possibly more rate cuts next year,\u201d he said at the Philippine Economic Briefing. \u201cSurely, I don\u2019t expect interest rates to go any higher. If not, if there is time, they will start to go down, maybe 150 bps in the next two years.\u201d <\/span><\/p>\n

Mr. Recto, who sits on the Monetary Board, said the BSP has room to reduce rates by the third quarter.<\/p>\n

\u201cThat\u2019s very much possible. It all depends on the inf<\/span>lation outlook, and I suppose what the Fed does. Those spreads should not be too dif<\/span>ferent between the US and the Philippines or else you might have flight to safety. But yes, it seems like inf<\/span>lation is going down,\u201d he said.<\/p>\n

The Finance chief also expects May inf<\/span>lation to stay within the target. May inf<\/span>lation data will be released on June 5.<\/p>\n

Headline inf<\/span>lation picked up to 3.8% in April from 3.7% in March, its third straight month of acceleration. However, it was the f<\/span>ifth straight month that inf<\/span>lation settled within the 2-4% target range.<\/p>\n

Mr. Recto said it is easier to reduce rates if inf<\/span>lation can settle f<\/span>irmly within the target.<\/p>\n

\u201cBut we\u2019re also mindful not only of domestic data but of what the Fed will do,\u201d he said. \u201cIt all depends on what our inf<\/span>lation data [are]. So that\u2019s the f<\/span>irst thing that we look at\u2026 Then you look at what the Fed will do.\u201d<\/p>\n

PESO WEAKNESS
\n<\/b>Meanwhile, BSP\u2019s Ms. Sicat noted that while the central bank is monitoring the peso\u2019s recent weakness, it prefers to allow the markets to determine the exchange rate.<\/p>\n

\u201cI would like to reiterate the FX (foreign exchange) policy of the BSP. We do not target any specific exchange rate level. We just let the market determine the level of exchange rate,\u201d she said. <\/span><\/p>\n

The peso closed at P58.11 a dollar on Monday, strengthening by eight centavos from its P58.19 finish on Friday. Last week, the peso closed at the P58-per-dollar level for the first time in over 18 months.<\/span><\/p>\n

\u201cWe look at whether there is presence of market stress. Because if we let the market stress to be left unattended, it would af<\/span>fect inflation expectations. And that\u2019s something that we are avoiding,\u201d Ms. Sicat said.<\/p>\n

\u201cGiven the fact that all of us are being affected by the current position of the Federal Reserve, I think this is only temporary. And eventually, once things clear up, it will be the fundamentals that will determine the level of exchange rate.\u201d<\/span><\/p>\n

National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan said inflation expectations would not be affected as long as the peso does not remain weak for a prolonged period.<\/span><\/p>\n

\u201cIt depends if it stays at that level for a long time, but if it\u2019s just temporary, I don\u2019t think it will have much effect on the overall future, but if it stays there a longer time, of course it will affect expectations and then prices, output and so on,\u201d he said.<\/p>\n

Meanwhile, Mr. Gudmundsson said that as long as there is no \u201csharp or prolonged\u201d depreciation, its impact on inflation remains manageable.<\/p>\n

\u201cIf you\u2019re talking about the current account de<\/span>f<\/span>icit, we also need to think about the fact that some depreciation can also support the exports of the Philippines, which in turn has a positive impact on the current account deficit,\u201d he added.<\/span><\/p>\n

Exchange rate flexibility is also a country\u2019s \u201cfirst line of defense against external shocks,\u201d Mr. Gudmundsson said.<\/span><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

THE Bangko Sentral ng Pilipinas (BSP) will keep monetary policy settings \u201crestrictive\u201d as upside risks to inflation remain.<\/div>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","footnotes":""},"categories":[1],"tags":[18091,2197,5796,14644,5406],"class_list":["post-18951","post","type-post","status-publish","format-standard","hentry","category-uncategorized","tag-restrictive","tag-maintain","tag-bsp","tag-bworldonline","tag-policy"],"yoast_head":"\nBSP to maintain \u2018restrictive\u2019 policy - Energy Buzz<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/energybuzz.ph\/bsp-to-maintain-restrictive-policy\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"BSP to maintain \u2018restrictive\u2019 policy - 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