{"id":19078,"date":"2024-06-05T03:12:52","date_gmt":"2024-06-05T03:12:52","guid":{"rendered":"https:\/\/energybuzz.ph\/staging\/6915\/bsp-may-cut-policy-rate-before-fed\/"},"modified":"2024-06-05T03:12:52","modified_gmt":"2024-06-05T03:12:52","slug":"bsp-may-cut-policy-rate-before-fed","status":"publish","type":"post","link":"https:\/\/energybuzz.ph\/staging\/6915\/bsp-may-cut-policy-rate-before-fed\/","title":{"rendered":"BSP may cut policy rate before Fed"},"content":{"rendered":"
\n

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

THE Bangko Sentral ng Pilipinas (BSP) can cut its policy rate before the US central bank despite a volatile peso, Governor Eli M. Re<\/span>molona, Jr. said on Tuesday.<\/p>\n

\u201cIt\u2019s possible that the Fed can cut in July,\u201d he told reporters in mixed English and Filipino.\u00a0 <\/span>\u201cThere are analyses that say July\u2026 We may go f<\/span>irst, but it depends on whether their inflation is stubborn. They may not cut.\u201d<\/p>\n

The BSP chief earlier said the earliest the central bank could cut the rate is by August.<\/p>\n

The Monetary Board last month kept its key rate steady at a 17-year high of 6.5%. The central bank raised borrowing costs by 450 basis points (bps) from May 2022 to October 2023 to tame inf<\/span>lation.<\/p>\n

Mr. Remolona said the peso is depreciating not because it is weak but more because the dollar is strong.<\/span><\/p>\n

\u201cThe story is not about the weak peso,\u201d he said. \u201cThe real story is about a strong dollar. Anytime there\u2019s tension, anytime there\u2019s uncertainty, money goes into the US dollar and the dollar gets stronger against other currencies.\u201d<\/span><\/p>\n

The peso closed three centavos weaker against the dollar at P58.71 on Tuesday, according to Bankers Association of the Philippines data posted on its website. On May 21, it sank to the P58-a-dollar level for the f<\/span>irst time since November 2022.<\/p>\n

The dollar is also strengthening due to hawkish signals from the US Federal Reserve, the BSP chief said.<\/p>\n

\u201cThe Fed has been saying that policy rates in the US will be high for longer. But the longer part keeps shifting, so that creates some uncertainty,\u201d he added.<\/p>\n

The BSP does not target a specific level for the peso, Mr. Remolona said.<\/p>\n

\u201cWe don\u2019t worry too much about the level itself,\u201d he said. \u201cWe worry more about how it gets to where it\u2019s going. We try to guide the market by occasionally expressing our own view on where it should go.\u201d<\/span><\/p>\n

The Development Budget Coordination Committee (DBCC) expects the peso to range from P55-P57 a dollar this year.<\/p>\n

The central bank has not been intervening in the foreign exchange market daily, but it does so from time to time to \u201cexpress our own view about where the peso should be going.\u201d<\/p>\n

\u201cWe don\u2019t intervene every day,\u201d Mr. Remolona said. \u201cWe intervene when we have to. And when we say we have to, it\u2019s when the currency is under stress. Under stress means we find some dysfunction in the market.\u201d<\/p>\n

\u201cSometimes, the peso goes sharply in the wrong direction, and then we might intervene,\u201d he added.<\/p>\n

Diwa C. Guinigundo, country analyst at GlobalSource Partners, said comments made by central bank officials are affecting the peso\u2019s performance.<\/p>\n

\u201cMarket observers and traders attribute the recent weakness of the Philippine peso precisely to this less hawkish statement on monetary policy outside the formal press statement of the Monetary Board, which was unequivocally hawkish,\u201d he said in a note.<\/span><\/p>\n

\u201cImmediately, the peso reacted by dropping to P58.27. It was not to be some temporary weakness, but it is now ushering in a depreciating trend beyond P58 a dollar,\u201d added Mr. Guinigundo, who is a former central bank deputy governor.<\/p>\n

He said the peso\u2019s persistent weakness could add to inflationary pressures.<\/p>\n

\u2018TOO AGGRESSIVE\u2019
\n<\/b>\u201cIf the weakness of the peso extends a year with such magnitude, and with an exchange rate passthrough of 0.08 percentage point (ppt) for every peso depreciation, we are looking at an additional inflation of 0.24 ppt,\u201d he said.<\/span><\/p>\n

\u201cThis means the market may even be more adaptive to the central bank\u2019s forward guidance rather than to the actual stance of monetary policy as defined by its policy rate,\u201d he added.<\/p>\n

Mr. Remolona said cutting rates by as much as 150 bps in the next two years might be too aggressive and would require a \u201chard landing\u201d scenario.<\/p>\n

\u201cGiven the present trajectory (of economic growth), it could be too aggressive,\u201d he said.<\/p>\n

He said the BSP might cut the key rate by 50 bps this year and by another 100 bps next year, but there must be \u201ca risk of a hard landing\u201d for this to happen.<\/p>\n

\u201cIn taming inflation, we don\u2019t want unnecessary loss of output,\u201d he said. \u201cAlthough you sometimes can\u2019t avoid a bit of loss of output because our calculations are not always precise. But if the loss of output will be significant, we will have to react to that.\u201d<\/p>\n

Finance Secretary Ralph G. Recto earlier said the Monetary Board could reduce the policy rate by as much as 150 bps in the next two years.<\/p>\n

The Philippine economy grew by 5.7% in the first quarter, below the government\u2019s 6-7% goal this year.<\/span><\/p>\n

Meanwhile, Mr. Remolona said the central bank is conducting a \u201cpost-mortem\u201d exam after its probe of so-called ghost employees. \u201cWe\u2019re doing a post-mortem on this. What else can we do to prevent this in the future?\u201d<\/p>\n

The central bank is conducting disciplinary proceedings on six employees under certain Monetary Board members. Four of these were \u201cghost\u201d employees, while the other two were identified as supervisors.<\/p>\n

The investigation was triggered in October after the Office of the General Counsel received reports about the workers.<\/p>\n

\u201cI was flabbergasted,\u201d Mr. Remolona said. \u201cI didn\u2019t think this kind of thing would happen at BSP. We really need a good reputation and enough credibility just to make monetary policy work.\u201d<\/p>\n

The Monetary Board is the policy-making body of the central bank headed by the governor. Its members are Mr. Recto, Benjamin E. Diokno, V. Bruce J. Tolentino, Anita Linda R. Aquino, Romeo L. Bernardo and Rosalia V. de Leon.<\/span><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

THE Bangko Sentral ng Pilipinas (BSP) can cut its policy rate before the US central bank despite a volatile peso, Governor Eli M. Remolona, Jr. said on Tuesday.<\/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":[1685,5796,14644,2243,15340,170,5406,1744],"class_list":["post-19078","post","type-post","status-publish","format-standard","hentry","category-uncategorized","tag-before","tag-bsp","tag-bworldonline","tag-cut","tag-fed","tag-may","tag-policy","tag-rate"],"yoast_head":"\nBSP may cut policy rate before Fed - 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-may-cut-policy-rate-before-fed\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"BSP may cut policy rate before Fed - Energy Buzz\" \/>\n<meta property=\"og:description\" content=\"THE Bangko Sentral ng Pilipinas (BSP) can cut its policy rate before the US central bank despite a volatile peso, Governor Eli M. 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