By Katherine K. Chan, Reporter
THE BANGKO SENTRAL ng Pilipinas (BSP) sees only a “small likelihood” of more aggressive monetary policy tightening this 12 months, despite renewed volatility and expectations of a second-half economic recovery.
BSP Governor Eli M. Remolona, Jr. on Tuesday said they could possibly be more aggressive in raising their key policy rate, potentially with a bigger 50-basis-point (bp) move, amid fresh and emerging threats to inflation.
“May likelihood naman pero baka maliit na likelihood (There’s a likelihood, but it surely could possibly be a small likelihood),” Mr. Remolona told reporters on the sidelines of a BSP event.
In June, the Monetary Board hiked its benchmark borrowing rate by 25 bps for a second straight meeting, bringing it to a virtually one-year high of 4.75%.
The BSP said this move got here as they proceed to see strong inflationary pressures, with oil shocks from the continuing Gulf war still feeding into the prices of local commodities akin to food and fuel.
The central bank projects the headline print to breach its 4% ceiling over the subsequent two years at 6.4% this 12 months and 4.5% in 2027, before settling barely above the three% goal at 3.1% in 2028.
Mr. Remolona noted that the brand new tax relief measures pushed by President Ferdinand R. Marcos, Jr. during his State of the Nation Address on Monday may have an effect on the country’s inflation.
“We’re still estimating it,” he said in Filipino. “But there may be (an impact). The key impact can be in 2027, with a smaller one in 2028.”
Mr. Marcos called on the Congress to pass several tax measures, including raising the brink for income tax exemptions for low- and middle-income earners and tax breaks for micro, small, and medium enterprises.
Also, Mr. Remolona said they’re still estimating the inflationary impact of the recent minimum wage hike within the National Capital Region.
The primary tranche of the record P85 minimum wage hike within the National Capital Region took effect on July 25, bringing the minimum wage within the region up by P60 to P755 for nonagricultural employees and to P718 for agricultural employees and employees of retail, service, and small manufacturing establishments.
The second tranche of the wage hike or P25 will take effect on Jan. 20 next 12 months.
The BSP chief earlier said that the wage hike, which got here higher than they anticipated, will pose significant price pressures but is unlikely to warrant an outsized policy rate hike.
PESO SLIDE
Meanwhile, Mr. Remolona noted that the peso’s recent slump to a brand new record low could stoke inflation because it pushes import costs higher.
Soaring oil prices amid renewed conflict within the Middle East dragged the peso to a fresh low of P61.847 against the greenback on July 24, down 9.7 centavos to interrupt its previous record low of P61.75 on Thursday.
Nonetheless, Mr. Remolona said the newest record low peso-dollar exchange rate is a “misleading number” as other currencies have also suffered from the greenback’s strength last week.
“But that’s a misleading number because exchange rates were moving, right? You’re looking only at peso-dollar, right?” he said. “But the remainder of the world has been, their currencies have been weakening against the US dollar.”
Still, Mr. Remolona noted that the BSP intervened very minimally within the foreign exchange market.
“When it’s a powerful dollar, we limit intervention to simply maintain orderly markets. Because if we intervene against a powerful dollar, we’re just helping the remainder of the world get their dollars,” he said.
“Binibigyan natin sila ng dollars. So, wala tayong laban sa gano’n. Uubusin lang natin ’yung dollars natin. (We give them dollars. So, we are able to’t compete with that. We’ll just use up our bucks),” he added.
The market sees the local unit testing latest lows this week as rising oil costs fuel inflation concerns.
Mr. Remolona said the BSP continues to be refining its models to evaluate the inflation outlook amid uncertainty over the combined impact of escalating tensions within the Middle East, the Metro Manila wage hike and proposed tax relief measures.
“We’re still refining since the models don’t necessarily take account of the uncertainty, so we’re still calibrating that,” he said. “But the same old, you realize, the worth of rice goes up or the worth of oil goes up, those things in themselves, you’ll be able to just stick them into the models. However the associated uncertainty, the associated effect on confidence, we still must fix that.”
Despite fresh inflationary threats, the BSP chief also reaffirmed his outlook that the economy would rebound by the latter half of the 12 months.
Meanwhile, Bank of America (BofA) Global Research said the Philippines’ continued vulnerability to inflationary risks may keep the BSP on a tightening path at the same time as its negative output gap could persist until next 12 months.
In a report published on Tuesday, BofA economists and analysts said the country is probably the most exposed to inflation risks amongst Southeast Asian countries, with its inflation prone to stay above the central bank’s 4% ceiling this 12 months until 2027.
“Meanwhile, as inflation is anticipated to remain outside the 2-4% goal range through 2027E in (the) Philippines, we see BSP climbing over again,” BofA said.
In keeping with the bank, it expects Philippine inflation to speed up to six.7% this 12 months, faster than its 5% estimate throughout the height of the five-month long war. If realized, inflation will hit its fastest pace in three years, or since 7.2% in 2023.
BofA also noted that Southeast Asian economies, except the Philippines, have been in a position to contain underlying price pressures.
“Whereas in (the) Philippines, the negative output gap is anticipated to persist through 2027,” it said. “In keeping with BSP, the output gap is anticipated to step by step narrow by the tip of 2027, supported by a recovery in investment. Rising real wages are also expected to support consumption, while stronger exports could also provide additional impetus to demand.”
The Monetary Board can have its next rate-setting meeting on Aug. 27, followed by two more regular policy reviews on Oct. 22 and Dec. 17.