Even as inflation starts to decelerate towards the 2 percent to 4 percent target range of the Bangko Sentral ng Pilipinas, a member of the policymaking Monetary Board thinks the central bank will only start to ease its hawkish stance early in 2024.
The BSP on Monday said it expects inflation to have eased further in July to within the 4.1 percent to 4.9 percent range, after settling at 5.4 percent in June. Since May last year to the time it paused in March, the central bank has raised key interest rates by a total 4.25 percentage points to a 16-year high 6.25 percent to ease inflationary pressure.
Finance Secretary Benjamin Diokno said Tuesday he thinks the BSP will not touch interest rates during the policy meeting set on 17 August, and more likely keep interest rates at current levels for the rest of the year.
Newly-appointed BSP Governor Eli Remolona earlier said it was premature to cut interest rates during the August meeting even after the steady decline in inflation starting February. He told a television interview the economy remains strong and inflation, despite the deceleration, remains outside the target range.
Diokno expects the central bank will only loosen monetary policy “early next year” when inflation is expected to fall below 2 percent due to softer prices of consumer goods and the so-called base effect.
Inflation hit a peak of 8.7 percent in January before it started to gradually slow down to June’s 5.4 percent—the same rate in May last year. Core inflation, which excludes volatile food and energy items, also eased in June but remains 2 percentage points above headline inflation at 7.4%.
Diokno said inflation in 2024 should average around the midpoint of the BSP’s target range at 2.9 percent.
The government will be a major beneficiary of a central bank decision to roll back high interest rates since it borrows heavily in the domestic capital market through the issuance of treasury bonds and bills to fund its budget that next year will likely be P5.768 trillion.
