The Bangko Sentral ng Pilipinas said Monday it could start easing interest rates if inflation continues to decelerate with the help of softening rice prices following the reduction of tariff to 15 percent from 35 percent with the implementation of Executive Order 62.
“The recent government decision in EO 62 to reduce the tariff on rice will be so helpful in our efforts to tame inflation. The BSP’s latest forecast, the rice tariff reduction will have a very significant downside impact on inflation trajectory until 2025,” BSP Gov. Eli Remolona told the House of Representatives at the start of the Committee on Appropriations hearings on the 2025 proposed national budget.
The government is seeking a budget of P6.352 trillion next year to sustain economic recovery in the wake of the COVID-19 pandemic and amid other global shocks. The government projects a faster growth rate of 6.5 percent to 7.5 percent for gross domestic product next year compared to 6.0 percent to 7.5 percent for this year.
Remolona said the latest surveys showed “inflation expectations are well-anchored” which lessens the central bank’s concerns about second round effects of supply shocks.
“The evolving inflation conditions show that the BSP can hold its policy-settings for the time being. If price pressures continue to ease, it will be possible for the BSP to consider a less restrictive monetary policy stance,” said Remolona, just a day before the Philippine Statistics Authority releases inflation data for July and more than a week before the BSP holds its monetary policy meeting.
Inflation in June eased to 3.7 percent after rising to 3.9 percent in May and settling at 5.4 percent in June last year due mainly to higher food and energy prices. Higher inflation has prompted the central bank to start a tightening cycle in 2022 that it paused in October last year, but not after rising key interest rates by a total 4.50 percentage points to 6.5 percent.
Higher interest rates have weighed on investments ond consumer spending due to the higher cost of money.
But Remolona said even with the rosier price prospects, the BSP will not rush into easing monetary policy given the lingering supply concerns and geopolitical risks.
