Philippine central bank governor says it is considering off-cycle rate hike
The Philippine central bank is evaluating an interest rate hike ahead of its next scheduled policy meeting on June 18, Governor Eli Remolona announced on Friday (May 22). The potential unscheduled move comes as the Bangko Sentral ng Pilipinas (BSP) assesses persistent supply shocks and a depreciating currency.
Governor Remolona indicated that the central bank's rate increase in April "did not seem enough" to effectively address current economic pressures. Policymakers are confronting what he described as a "big and persistent supply shock," according to The Business Times. This situation has prompted the BSP to consider a more aggressive monetary policy stance to curb inflation.
The Philippine peso has experienced a depreciation of approximately 4.6% against the U.S. dollar, with LSEG data showing it has breached the 60-peso level, The Business Times reported. This weakening of the currency contributes to imported inflation and adds to the central bank's concerns.
Inflation risks are reportedly worsening, with ongoing shocks stemming from the Middle East conflict continuing to feed into consumer prices, Bworldonline reported. Governor Remolona acknowledged the emergence of stagflation risks, a scenario characterized by slowing economic growth alongside accelerating inflation.
MUFG Research highlighted that inflation in the Philippines appears "much stickier" compared to other high-yielding Asian economies. A significant portion of this stickiness is attributed to rice price shocks, which are largely beyond the central bank's direct control. Furthermore, economic growth in the Philippines is already experiencing a slowdown, according to MUFG Research.
The BSP had previously raised its key interest rate by 25 basis points to 4.50% in April. This action marked the first such increase in over two years and signaled the start of a new tightening cycle, Bworldonline reported. The April hike was implemented to help keep a lid on inflation, The Business Times noted.
The central bank has a precedent for unscheduled policy adjustments. On March 26, the BSP held an off-cycle meeting, making it the first central bank in Asia to do so at that time. This reflected heightened concerns among policymakers regarding the potential impact of the Middle East conflict on both inflation and economic growth, The Business Times reported.
In October, the BSP also implemented an off-cycle rate hike, increasing its key policy rate by 25 basis points from 6.25% to 6.50%. This decision followed earlier indications from the Governor that such a move was a possibility, and it achieved consensus among the BSP Monetary Board, MUFG Research noted. The October off-cycle adjustment also came after a surprise rate hike by Bank Indonesia.
Governor Remolona stated that the Monetary Board is currently considering whether to implement a second consecutive rate hike before its regularly scheduled meeting on June 18. He characterized the decision as "a toss-up whether we do an off-cycle or we just wait for the regular meeting, which is not that far away anyway," Bworldonline reported.
While the BSP is focused on maximizing its monetary policy tools for inflation-targeting, Governor Remolona also indicated that the central bank is banking on fiscal policy to support the economy's recovery, Bworldonline reported.