With a credible and well-anchored inflation expectations, Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona said there is room to reassess previous monetary policy decisions to “pause and hold” but the data-dependent BSP is still unsure of where the data is leading it.

“In the last two meetings we have paused. We are reassessing the situation,” he said on Monday, Aug. 14, during a Philippine Economic Briefing (PEB) in Laoag, Ilocos Norte, the last of the three-city PEB by the administration's economic team this past week.

“That’s where we stand. We will go where the data leads us but sometimes, the data don’t seem to know where to go,” said Remolona.

Just three days before the BSP has to again decide its monetary policy stance, as forward guidance goes, Remolona’s signals are more cautious unlike in previous weeks when he said the BSP will likely raise rates than pause or to cut in the next policy meetings.

During a recent budget hearing at the Lower House, the BSP chief has already communicated its intention review the current BSP rate pause but he seems less confident as of Monday of the mixed data that they had to rely on.

He has said that they have reconsidered and that they have reassessed. “The data is still mixed so we're not sure. We haven't been sure whether to raise or even to cut. But for now, we're at a pause and we're reassessing the situation. So, that's where we stand,” he said a week before the PEB.

The central bank’s Monetary Board will meet on Thursday, Aug. 17, to decide whether to continue to pause or raise the BSP benchmark rate amid the depreciating peso vis-à-vis the US dollar, recent US Federal Reserve rate increase, and the lower-than-expected gross domestic product (GDP) in the second quarter.

“The good news is that inflation expectations are still well-anchored,” said the BSP chief. 

As of end-July, the consumer price index (CPI) is still elevated at 6.8 percent versus the target range two percent to four percent. Monthly CPI has come down to 4.7 percent in July from 5.4 percent in June.

“In other words the markets continue to believe that we will hit our target range by 2024 and stay there until 2025,” said Remolona.

As of its last policy meeting, the BSP forecasts 2023 inflation will average at 5.4 percent, and for 2024 it will decelerate further to 2.9 percent. By 2025, CPI is projected to average at 3.2 percent, the middle range of the target band.

Remolona said they want to stay in the middle range of the two percent to four percent target at 2.9 percent to 3.2 percent for 2024 and 2025.

“There are good reasons for these expectations,” he said.

The BSP has a current “hold” position in monetary policy setting. The benchmark rate is still 6.25 percent for the last two policy meetings in a row. The pause in the monetary tightening cycle has allowed BSP some time to review markets’ conditions after the aggressive rate hikes.

Remolona said the bad news is there are upside risks to inflation. These includes transport fare hikes, higher wage adjustments, food supply constraints, and El Niño phenomenon which is already causing drought in the country’s Asian neighbors including Vietnam where the government get its rice imports.

Downside risks are still the impact of a weaker-than-expected global economic recovery.

However, the BSP expects the growth momentum will remain intact over the near term, and that the recent demand indicators suggest a moderation in economic activity over the policy horizon, reflecting the impact of the BSP’s cumulative policy rate adjustments as well as weak global growth prospects.

Despite that inflation is slowing down, domestic demand have responded to tighter monetary conditions. Meanwhile, upside risks to the inflation outlook also warrant continued vigilance against potential second-round effects, said the BSP.