NextGen Day

Governor of the Bangko Sentral ng Pilipinas (BSP), Felipe Medalla, stressed on Friday that before the central bank changes its rates, it is important to observe how its counterparts decide on key policy rates. He added that the BSP has already taken sufficient action to keep Philippine inflation within target for the remainder of the year.

“We must closely monitor what the other central banks will do. In an interview with Bloomberg TV, he stated, “We’re fairly sure that we’ve already done enough if the main basis for the rates is Philippine inflation.

The most recent figures, according to Medalla, showed that inflation “is already back to normal.”

If nothing unexpected happens, we anticipate inflation below 4 percent by October or November. And we anticipate inflation to be very near to the 3 percent midpoint of our target next year, he added.

Medalla stated that “we’re unlikely to match them” even though central banks in advanced economies are still considering raising interest rates further because inflation has continued to slow and “there’s little reason to raise (rates), and there’s little reason to cut.”

Unless there is new information that indicates otherwise, he stated, “This situation is likely to continue for quite some time.”

In response to the question of how long he believes the BSP can maintain its key rates, Medalla stated that “if we see inflation below 3 (percent), let’s say as far as January or February, that will be a good time to say, well, maybe we have room to cut.”

“Of course, it’s difficult to say at this point, but in my opinion, we should exercise patience since there are two mistakes we could make. One is cutting when we shouldn’t have and turning around. It’s a bad error, that. When it should have been severed, the other one wasn’t. It’s simple to fix the error. Do better throughout the subsequent meetings, he advised.

Medalla claimed that “waiting is the better strategy under these situations.”

If the current circumstances continue, “perhaps the ideal waiting period is up to January to February,” he suggested.

When asked about the BSP’s upcoming goals, Medalla responded that the institution had “done everything quickly” and that the effects of these actions “are now being felt by the economy.”

The capital market developments, which include increased trading of government securities and more effective payment systems by maximizing the use of technology, should be the main focus of the upcoming programs, according to him.

Based on expectations that the inflation rate will return to within the government’s 2 to 4 percent target band starting in the final quarter of this year, the Monetary Board (MB), the body responsible for setting policy at the BSP, maintained the key policy rates on Thursday for the second consecutive rate-setting meeting.

During the MB rate-setting meeting of May 18, the BSP further reduced its 2023 average inflation forecast from 5.5 percent to 5.4 percent.

On the other hand, the 2024 projection was increased from 2.8 to 2.9 percent in light of predictions that the economy will continue to reopen and recover faster, leading to a faster rate of price increases.

The forecasted rate for 2025 is 3.2 percent, which was arrived at after considering, among other things, potential interest rate trajectory and salary adjustment assumptions.

This year, the rate of price rises, which had fallen to 6.1 percent from April’s 6.6 percent, maintained its downward trend from January to May. This comes after the headline inflation rate increased to its 14-year high of 8.7 percent in January of last year when it peaked.

In February, the headline inflation rate was 8.6%, and in March, it was 7.6%.

When asked if he had received any notice of his potential reappointment or replacement once his term ends on July 3, Medalla responded that no one had.

“But I do not doubt that monetary policy will continue the way it has continued from one governor to the next,” he remarked, “but I do not doubt that President Ferdinand R. Marcos Jr. will make up his mind this week.”

Benjamin Diokno, a former BSP governor who Marcos had named to lead the Department of Finance (DOF), was replaced as BSP chief by Medalla in May 2022.

He recently completed Diokno’s remaining term, he was appointed when the late BSP Governor Nestor Espenilla Jr. passed away from cancer in February 2019.

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