BSP Sees Slim Chance of 50-bp Rate Hike, Keeps Door Open

The Bangko Sentral ng Pilipinas (BSP) is keeping the door open to a potential 50-basis-point (bp) interest rate hike at its next policy meeting on Aug. 27, as policymakers assess a growing list of inflation risks. However, BSP Governor Eli Remolona Jr. said such a move remains unlikely for now. Asked whether heightened volatility and emerging price pressures could prompt the central bank to step up the pace of monetary tightening, Remolona said a half-point increase at the Monetary Board’s Aug. 27 policy meeting is possible. “There’s a chance, yes, but it’s a small chance,” Remolona told reporters. The BSP has already raised its benchmark rate by a total of 50 basis points this year, bringing the target reverse repurchase rate to 4.75 percent after consecutive 25-bp hikes in April and June. The Monetary Board’s next policy meeting is scheduled on Aug. 27. The central bank is now reassessing the inflation outlook as it factors in the renewed conflict in the Middle East, higher wages, fresh US tariffs, tax measures and exchange rate movements. However, he said conventional economic models may not fully capture the uncertainty surrounding the recent shocks, making it more difficult to determine their impact on inflation and monetary policy. “We’re still refining because the models don’t necessarily take account of the uncertainty. So we’re still contemplating that,” he said. Headline inflation stood at 6.4 percent in June, still well above the BSP’s three percent target. Core inflation, which strips out volatile food and energy items, accelerated to 4.4 percent from 4.1 percent. Another risk under review is the latest minimum wage increase in Metro Manila. A P60 increase took effect on July 25, lifting the daily minimum wage for non-agricultural workers to P755 from P695. Another P25 increase is scheduled for Jan. 20, 2027, which will bring the rate to P780. Remolona said the BSP was still estimating the wage adjustment’s effect on inflation. He also said the central bank was not consulted during the wage-setting process. “There was a tripartite group talking about it. We weren’t included in that,” he said. “In principle, we can offer what is called technocratic advice on the side, but we weren’t consulted.” The BSP is likewise studying the impact of the latest US tariff measures, which imposed a 12.5-percent tariff on Philippine goods under Washington’s new trade action involving dozens of economies. Remolona said the central bank was still estimating the inflationary impact, with the larger income effects likely to emerge next year. On whether the BSP was concerned about the latest tariff developments after the Philippines weathered US reciprocal tariffs last year, Remolona said the economy may be able to absorb the impact, although negotiations are continuing. Currency movements have added another layer of uncertainty after the peso sank to a record-low 61.847 against the dollar on July 24. Remolona cautioned, however, against viewing the peso-dollar rate in isolation, noting that other currencies had also weakened sharply as the greenback strengthened. Still, the BSP chief acknowledged that a weaker peso could feed into domestic prices through more expensive imports. Despite the renewed inflation, currency and external pressures, Remolona still expects the Philippine economy to recover in the second half of the year. Source: Philstar Business