Philippine Central Bank Eyes August Rate Cut Amid Possible Inflation Peak

Philippine central bank Governor Eli Remolona hinted at a potential key interest rate cut in August, citing signs of inflation peaking this month. Depending on upcoming economic data, the central bank aims to lower the rate by at least a quarter percentage point.

Philippine Central Bank Considers August Rate Cut as Inflation Nears Peak, Says Governor Remolona

Governor Eli Remolona has indicated that the Philippine central bank may still be on course to reduce its key interest rate by a minimum of a quarter percentage point in August, as there are indications that inflation may reach its apex this month.

“I think August 15 is still a possibility. Of course, it will depend on the numbers,” he told reporters late on July 31 when asked if the Bangko Sentral ng Pilipinas would lower its key rate at its next policy meeting.

Remolona reiterated that the central bank is considering a total reduction of 50 basis points in its key rate this year, with a potential quarter-percentage-point cut in August and a comparable reduction later in the year.

According to Yahoo Finance, the central bank anticipates inflation may exceed its 2%-to-4% objective this month due to elevated power, food, and petroleum prices. However, Remolona stated that the headline number, which BSP anticipates will increase from 4% to 4.8% in July from 3.7% in June, may reach its zenith this month, partly due to base effects.

Lower Rice Tariffs to Help Moderate Inflation, Paving Way for Possible Rate Cut in August

Lower rice tariffs will help “significantly moderate” inflation in the coming months, according to Remolona. “That’s a good thing that will help us ease monetary policy,” he said.

The BSP chief said monetary authorities will also consider the second-quarter economic growth data, which will be released next week. “We’re so close to the point where we might be getting to below capacity,” he said.

Remolona has indicated a growing willingness to transition to monetary policy relief as early as next month. He stated that the BSP would immediately need to reduce its policy rate, as the economy had exhibited signs of strain, with borrowing costs at a 17-year high.

A reduction in August would indicate that the Philippines will reduce its interest rates before the US Federal Reserve, which has shown that it may reduce its rates as early as September. Ralph Recto, the Finance Secretary and Remolona's colleague on the rate-setting monetary board, has endorsed the BSP's approach.

This month, the peso has appreciated about the US dollar, which also lends credence to the argument for a rate reduction.