Easing inflation leaves room for rate cuts, ex-central banker says
THE Monetary Board could cut rates at its April meeting, with receding inflation giving it space to ease monetary policy, a former Bangko Sentral ng Pilipinas (BSP) official said.
GlobalSource Partners Country Analyst Diwa C. Guinigundo, a former deputy governor, told reporters on Wednesday: “I think the BSP has a space to cut. One, the actual inflation rate of 2.1% in February. And then in January, 2.9. — so that’s 2.5 average. That is within the target of 2-4%. So on that basis, they have a reason.”
BSP Governor Eli M. Remolona, Jr. said the monetary authorities are still in easing mode, after an unexpected decision to keep the benchmark rate steady last month at 5.75% amid “global trade uncertainties.”
He signaled that a rate cut is still “on the table” at the Monetary Board’s next rate-setting meeting on April 10.
Mr. Guinigundo said inflation expectations and the BSP’s forecast fall within the range of 2-4% target.
Headline inflation in January eased to 2.1% in February from 2.9% a month earlier and 3.4% a year earlier, according to the Philippine Statistics Authority.
“Of course, as I said, yes you can cut, but you have to be very careful because of the risks,” he said.
He said these include the new US government’s trade policies, and the possible adjustment to fares and wages, noting that these could add to inflation.
“Even without this political noise, the BSP should always be careful in its easing policy stance. Precisely because in America, the US Federal Reserve is not that aggressive,” he said.
He also noted the differential between the Federal funds target rate and the BSP’s policy rate.
“(The gap is) around 100-125 bps. That is the risk premium. If it can go down, because we are going down, that could be a possible reason or underlying reason for capital to flow out,” he said.
Meanwhile, Mr. Guinigundo said the political noise surrounding former President Rodrigo R. Duterte’s arrest could hurt the peso.
“But there are bonds coming in. Some people invested. Others made outward investments in the previous period. Now they are returning the money here. That is a counterweight to the negative political noise.”
“That’s why peso is stable. But once the configuration of events changes, then you can expect some volatility,” he said.
The peso closed at P57.36 to the dollar on Thursday, unchanged from its Wednesday finish. — Aubrey Rose A. Inosante
