BSP Chief Sees 'Little Chance' of Aggressive Rate Hikes Amid Inflation Risks

MANILA, Philippines — Bangko Sentral ng Pilipinas Governor Eli Remolona Jr. said there was “little chance” the central bank would respond with aggressive interest rate hikes, despite mounting inflation risks from renewed conflict in the Middle East and a hefty wage increase. Speaking to reporters on Tuesday, Remolona acknowledged that the twin shocks could fan inflation but said the central bank was refining its forecasting models to better account for heightened uncertainty as officials weigh their next policy moves. However, he stopped short of ruling out a larger-than-usual rate increase or an off-cycle move before the Monetary Board’s August 27 policy meeting. “There’s a chance, but maybe it’s a small chance,” he said when asked whether the central bank could resort to more aggressive tightening. As the Gulf conflict enters its sixth month, renewed fighting has pushed global crude prices back above $100 a barrel, raising costs for oil-importing economies like the Philippines. The turmoil has also rattled currency markets, sending the peso to a record low of 61.847 against the dollar and heightening the risk of imported inflation. The bearishness intensified when the Trump administration said it would impose tariffs of 10 percent and 12.5 percent on imports from 60 trading partners, including the Philippines, accusing them of failing to adequately enforce bans on goods produced with forced labor. At home, Remolona said the BSP was still assessing the inflationary impact of the P85 daily wage increase approved for workers in Metro Manila, which will take effect in two tranches. He added that the central bank was not consulted before the wage hike was approved, despite having been asked for its “technocratic advice” on similar decisions in the past. The new risks are emerging just as inflation had begun to show signs of easing. Consumer prices rose 6.4 percent in June, slowing from the previous month’s reading of 6.8 percent but remaining well above the BSP’s 3 percent target. So far, the central bank has raised its benchmark interest rate by a quarter percentage point to 4.75 percent, bringing cumulative increases since April to 50 basis points as officials sought to keep inflation expectations anchored despite mounting external shocks. Remolona said he still expected the economy to regain momentum in the second half of the year and played down the latest round of US tariffs. “It looks like we’re already used to it (US tariffs),” he said. In a commentary, economists at Bank of America said they expect the BSP to hike once more. “The Philippines has been the hardest hit by the oil shock,” they said, adding that the country “remains the most exposed to upside inflation risks” in Asia. INQ