Philippine central bank signals pause in tightening cycle as inflation cools
FILE PHOTO: Philippine Finance Secretary Benjamin Diokno attends an economic briefing following President Ferdinand Marcos Jr's first State of the Nation Address, in Pasay City, Metro Manila, Philippines, July 26, 2022. REUTERS/Lisa Marie David
CEBU, Philippines : The Philippine central bank could pause interest rate hikes at its monetary policy meeting this week, its governor said on Monday, after inflation in April eased for a third straight month.
"If you're sure this is a permanent trend, clearly we must pause because there will be no need for another one," Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla told reporters on the sidelines of a financial stability conference.
Philippine annual inflation eased for a third straight month in April to 6.6 per cent, and the economic planning ministry said last week it appeared to have peaked and was on track to ease towards the government's 2 per cent-4 per cent target by the fourth quarter.
The seven-person policy-making Monetary Board, which Medalla heads, will meet on May 18 to set the central bank's benchmark rate which currently stands at 6.25 per cent following a total of 425 basis points hikes since May last year.
One of its members, Finance Secretary Benjamin Diokno said on Friday he would vote to keep the benchmark rate steady given that inflation was declining. "I'm for a pause, that's my opinion," he said.
Despite cooling inflation, there was no solid consensus for a pause, with some economists pencilling in a hike before the central bank takes a break from its 10-month policy tightening cycle.
Officials have said the central bank's aggressive tightening could dampen domestic demand, which slowed for a fourth straight month in the first quarter and contributed to the economy's slower annual expansion in the first quarter of the year.
The International Monetary Fund said on Friday that with risks to inflation remaining on the upside, "a continued tightening bias may be appropriate until inflation falls decisively within the 2-4 per cent target range".
Medalla, who is expecting next year to be a "year of good growth and good inflation" ruled out a rate cut any time soon to manage interest rate differentials with the United States.
"If the U.S. is not cutting, it's hard for us to be cutting lower," Medalla said.
