Recto expects BSP to keep rates steady amid weak peso
LATEST INFLATION DATA and the recent peso performance will likely prompt the central bank to extend its policy pause, Finance Secretary Ralph G. Recto said.
“We’ll take a look at the data. So far, the way I see it, unless something changes between now and then, I think (it will be) more or less steady,” he told reporters late on Tuesday.
Mr. Recto is part of the seven-member Monetary Board, which is set to have its meeting today (May 16).
The BSP is widely expected to keep its benchmark rate at a 17-year high of 6.5%, according to 17 out of 19 analysts in a BusinessWorld poll last week.
From May 2022 to October 2023, the central bank raised interest rates by a total of 450 basis points (bps) to tame inflation. It last raised borrowing costs in an off-cycle rate hike in October.
“It all depends on inflation. We all go back to inflation. The expectations for inflation this year are lower than expected. But it will still be sticky. I think it will be a little higher next year also,” Mr. Recto said.
Inflation accelerated for a third straight month to 3.8% in April from 3.7% in March. It also marked the fifth straight month that inflation settled within the BSP’s 2-4% target range.
Inflation averaged 3.4% in the January-April period, below the central bank’s 3.8% full-year forecast.
Mr. Recto said that the peso’s recent performance will also be factored in the Monetary Board’s decision on Thursday.
“That’s part of it, why I think rates will stay the same,” he said.
The peso has been trading at the P57 level since mid-April.
The peso closed at P57.505 against the dollar on Wednesday, strengthening by 33.5 centavos from its P57.84 finish on Tuesday.
The Finance chief said that the Monetary Board may begin cutting rates by the fourth quarter of this year.
“Moving forward, I expect rates to go lower. Maybe not this Monetary Board (meeting), but it’s possible that within the end of the year, there could be a possible reduction in rates,” he said.
BSP Governor Eli M. Remolona, Jr. said that they could reduce rates if inflation settles firmly in the 3% area. — Luisa Maria Jacinta C. Jocson